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Low-Income Housing Tax Credit Program: ... qualified allocation plan

Low-Income Housing Tax Credit Program: 2005 qualified allocation plan

STATE OF ARIZONA Low-Income Housing Tax Credit Program
2005 QUALIFIED ALLOCATION PLAN
Table of Contents 1. 1.1. 1.2. 2. 2.1. 2.2. 2.3. 2.4. 2.5. 2.6. 2.7. 2.8. 2.9. 2.10. 2.11. 2.12. 2.13. 2.14. 2.15. 2.16 3. 3.1. INTRODUCTION Background General and Specific Goals APPLICATIONS FOR TAX CREDITS Amount of State's Annual Credit Authority Available Statewide Maximum Tax Credit Reservation Timetable and Application Submission Location Application Format Application Review Process For Projects that are not Bond Financed Eligibility Requirements 2005 Set-Asides 2005 Project Scoring Rents Tiebreaker Project Ranking Carryover Allocation 10% Test and Other Required Documentation Forward Commitments Questions Non-Allocated Projects 1 2 3 3 4 4 4 5 15 17 21 21 22 22 23 24 24 24
TAX CREDITS FOR DEVELOPMENTS FINANCED WITH STATE VOLUME CAP BOND AUTHORITY Determination of Tax Credits for Tax-Exempt Bond Projects 25
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4. 4.1. 4.2. 4.3. 4.4. 4.5 4.6 4.7. 4.8 4.9 4.10. 4.11. 4.12. 4.13. 4.14. 5. 5.1. 5.2. 5.3. 5.4. 6. 6.1. 6.2. 6.3. 6.4. 6.5. 6.6. 6.7. 6.8. 6.9. 6.10. 6.11. 7. 7.1. 7.2. 7.3. 7.4. 7.5. 7.6. 7.7. 7.8.
GENERAL REGULATIONS False Filing Satisfactory Progress Change of Ownership Special Needs Populations Senior Projects Revocation of a Certificate of Qualification for 4% Tax Credits, Tentative Award Letter, Certificate of Reservation or Carryover Allocation for 9% Tax Credits Disqualification Extended Use Period Acquisition of Land and Buildings Material Changes Distribution of Units Amendments to the QAP Disclaimers Return of Tax Credits FINAL TAX CREDIT ALLOCATION Final Tax Credit Allocation and First Year Certification by ADOH First Year Certification and Issuance of Final Allocation (IRS Form 8609) Final Allocation Underwriting Extended Use Agreement FEES Application Fee Director's Discretion Application Fee Building Permit Extension Fee Determination or Reservation Fee and Final Allocation Fee Applicant's Obligation for Fee Payment Tenant Ownership Fees Carryover Allocation Late Fees 10% Test Late Fees Administration Fees Compliance Monitoring Fees Fees Are Not Refundable UNDERWRITING Underwriting Standards Builder's Profit, Overhead and General Requirements Limits Construction Financing Costs Permanent Financing Cost Rent-up and Operating Reserves Cost Attributed to Market Rate Units Other Features Development Cost Standards
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27 27 28 28 28 28 29 29 29 29 31 31 31 31
31 32 33 33
34 34 34 34 35 35 35 35 36 36 36 36 38 39 39 39 39 40 40
7.9. 7.10. 7.11. 7.12. 7.13. 7.14. 7.15. 7.16. 7.17. 8. 8.1. 8.2. 9.
Calculation of Tax Credits Operating Costs Operating Income Permanent Financing Provisions Funding Gaps State Housing Fund Eligible Basis Analysis Equity Gap Analysis Layering PROJECT COMPLIANCE MONITORING Project Compliance Monitoring Compliance Monitoring Procedure DEFINITIONS
41 41 41 42 42 42 43 43 44 44 45 48
EXHIBITS Exhibit B - Sample Letter of Community Assessment Exhibit C - Year 2005 DDA and QCT Exhibit D Year 2005 Mandatory Design Guidelines Exhibit E - Sample Legal Opinion Exhibit E-1 - Sample CPA Opinion Exhibit F - Example 10% Test Letter Exhibit F-1 - Project Cost Form Exhibit G - Final Cost Certification Letter Exhibit H - Imputed Incomes/Allowable Rents Exhibit I - Application Format Exhibit L - Market Demand Study Guide Exhibit W-Architect's Certificate Exhibit W-1-Fair Housing Act Accessibility Checklist Exhibit W-2-Contractor's Certificate Exhibit X Operational Risk Management Practices Exhibit Z Service Provider Questionnaire
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1.
INTRODUCTION
1.1. Background The federal low-income housing tax credit ("LIHTC" or "Tax Credits") 1 program was established by the Tax Reform Act of 1986, codified in Section 42 of the Internal Revenue Code of 1986, as amended ("IRC Section 42") to encourage construction and rehabilitation of low-income rental housing. The Arizona Department of Housing ("ADOH") is the housing credit agency responsible for allocating Tax Credits to Owners of qualifying residential rental projects ("Projects"). The Revenue Reconciliation Act of 1989 amended IRC Section 42 by adding Section 42(m), which requires allocating agencies to allocate lowincome housing tax credits pursuant to a Qualified Allocation Plan ("QAP," "Plan," or "Allocation Plan"). IRC Section 42(m)(1) provides as follows: (B) QUALIFIED ALLOCATION PLAN--For purposes of this paragraph, the term 'Qualified Allocation Plan' means any plan-(i) which sets forth selection criteria to be used to determine housing priorities of the housing credit agency which are appropriate to local conditions, (ii) which also gives preference in allocating housing credit dollar amounts among selected projects to-(I) projects serving the lowest income tenants, and (II) projects obligated to serve qualified tenants for the longest periods, (III) projects which are located in qualified census tracts (as defined in subsection (d)(5)(c) and the development of which contributes to a concerted community revitalization plan and (iii) which provides a procedure that the agency (or an agent or other private contractor of such agency) will follow in monitoring for noncompliance with the provisions of this section and in notifying the Internal Revenue Service of noncompliance with the provisions of this section which such agency becomes aware of and in monitoring for noncompliance with habitability standards through regular site visits. (C) CERTAIN SELECTION CRITERIA MUST BE USED--The selection criteria set forth in a Qualified Allocation Plan must include-(i) project location, (ii) housing needs characteristics, (iii) project characteristics including whether the project includes the use of existing housing as part of a community revitalization plan, (iv) sponsor characteristics, (v) tenant populations with special housing needs, (vi) public housing waiting lists, (vii) tenant populations for individuals with children, and (viii) projects intended for eventual tenant homeownership. (D) APPLICATION TO BOND FINANCED PROJECTS--Subsection (h)(4) shall not apply to any project unless the project satisfies the requirements for Allocation of a
1 The defined terms that are used in this QAP are in Section 9. 1
housing credit dollar amount under the Qualified Allocation Plan applicable to the area in which the project is located. There are two methods for obtaining a Tax Credit Allocation: (i) through an application submitted pursuant to this QAP and (ii) tax-exempt bond financing. Since the start of the Arizona program in 1987, over $700 million in private capital has been invested into the State of Arizona (the "State"), assisting in the development of nearly 23,000 Units of affordable housing. The LIHTC program has resulted in the production of affordable housing for low and moderateincome households throughout Arizona. 1.2. General And Specific Goals A. General Goals. The LIHTC program is not an entitlement program. The federal government has established annual ceilings on the dollar amount of Tax Credits that ADOH may allocate to qualifying Projects, and detailed eligibility standards and priority uses for available Tax Credits. ADOH awards Tax Credits following a competitive process. In furtherance of the statutory provisions affecting the Credit program, ADOH has established the following general goals for allocating Tax Credits in Arizona: To maximize the number of affordable rental housing Units added to the existing housing stock; To allocate Tax Credits to Projects that provide the greatest overall public benefits; To allocate all Tax Credits; To encourage development and preservation of appropriate rental housing for people and families that need governmental assistance to find and maintain suitable and affordable rental housing in the private marketplace; To enable substantial Rehabilitation of existing rental housing in order to prevent losses to the existing supply of affordable Units; To prevent the loss from the existing stock of low-income rental housing of those Units under expiring contracts with federal agencies or subject to prepayment which, without the Allocation of Tax Credits, would be converted to market rate Units; To maximize the utilization of Tax Credits; To provide an equitable distribution of Tax Credits across the State; and To provide opportunities for participation in the Tax Credit program to all qualified sponsors of low-income rental housing.
B. Specific Goals. In addition, in allocating Tax Credits, ADOH seeks to achieve specific goals. These are:
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To use Tax Credits in connection with rental housing "Projects serving the lowest income tenants"; To use Tax Credits in connection with rental housing "Projects obligated to serve qualified tenants for the longest periods"; To distribute Tax Credits by apportioning federal tax credit among proposals targeting low-income populations -- including large families, homeless persons, persons with special needs, and senior citizens; To hold competition among only those Projects considered sound investments of public funds; To expend public funds in the minimum amount necessary to achieve program goals; To administer the LIHTC program in a manner that encourages timely Project completion and occupancy; and, To encourage the highest available quality and design for Projects financed with Tax Credits.
From year to year, the State may supplement these general goals with more specific goals in order to meet specific affordable housing needs. 2. APPLICATIONS FOR TAX CREDITS
2.1. Amount of State's Annual Credit Authority Available Statewide The State will receive an annual Allocation of Tax Credits based on a population Allocation of $1.75 per resident, adjusted for inflation. 2.2. Maximum Tax Credit Reservation The maximum Reservation for any single Project or Scattered Site Project, not utilizing HOPE VI, will be $850,000 of the State's annual credit authority and no more than a total of $2.55 million in any year for any one Owner, Developer, Co-Developer or Affiliate of the Developer or Co-Developer with multiple Projects. ADOH may award Tax Credits for a maximum of three Projects each year to a Developer, CoDeveloper and any Affiliate of the Developer or Co-Developer provided one of the Projects is a rural Project. Developers of large Projects may be required to phase their Projects, accepting a Reservation for only one phase during the 2005 program year. Accepting a Reservation for only one phase during any program year will not preclude an Applicant from receiving a subsequent Reservation for a subsequent phase, nor does it guarantee that the Applicant will receive Reservations for any subsequent phases. Each HOPE VI proposal may only contain one Project regardless of the number or location of buildings. Each HOPE VI Project is subject to a maximum Reservation of up to $1.2 million from the 2005 State Annual Credit Authority. HOPE VI proposals that intend to utilize more than $1.2 million in any given year must be done in phases. Each HOPE VI proposal must identify all Tax Credit needs of all development phases in the first application submission. Additional Reservations from future rounds may not be made to the same phases that received a prior Allocation. All subsequent phases that have not
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received a previous Allocation are eligible for future Reservations, but are not guaranteed a Reservation. ADOH will award Tax Credits to HOPE VI proposals in an amount not in excess of $1.2 million. Applicants may not divide a Project into two or more Projects for the purpose of receiving more Tax Credits in the same year. If ADOH determines that multiple applications in the same year constitute a single Project, ADOH may deny the applications, or combine them into one application. An Allocation, as determined by ADOH, shall not exceed the amount ADOH determines is necessary for the financial feasibility of the Project and its viability as a qualified low-income housing Project. 2.3. Timetable and Application Submission Location ADOH will hold one Tax Credit application round in 2005. Applications will be available on or about the first business day in January 2005. Applicants must submit to ADOH one original and two complete copies of an application and a non-refundable application fee of $3,500 for each application on or before 5:00 P.M. March 15, 2005. Applications must be received at the reception desk of the Arizona Department of Housing located on the 2nd Floor of the Executive Tower at 1700 W. Washington, Suite 210, Phoenix, Arizona, 85007. Fax and e-mail submissions will not be accepted. All applications received between January 03, 2005 and 5:00 P.M. March 15, 2005, (the "Deadline Date") will be eligible for consideration. 2.4. Application Format and Compliance Application material must be in 8-1/2 x 11 format, placed in an adequate sized three ring binder, indexed and tabbed to correspond with the enumeration prescribed below. Exceptions: (1) all drawings/plans may be included unbound if they do not lend themselves to the 8-1/2 x 11 formats. All such plans should be in the smallest practical (readable) format. Maximum acceptable drawing size is C-size; and (2) items of significant volume (such as a real estate appraisal, Market Demand Study, Capital Needs Assessment or environmental reports) may be submitted as separate bound items. Each application must comply with the format and content of this QAP and present to ADOH a clear, unambiguous and complete application by the Deadline Date. ADOH may reject any application that does not conform to the requirements of this QAP or is submitted after the Deadline Date. 2.5. Application Review Process for Projects that are not Bond Financed Other than Bond Financed Projects, ADOH will score all applications in a competitive review process utilizing the criteria listed herein. ADOH will take the following steps in processing applications and reserving and allocating credits: (1) Set-Asides - Applications will be categorized based on Set-Asides elected and information included in the application. For Set-Aside information see Section 2.7. of this QAP; (2) Eligibility Requirements - ADOH will review the application and any other information pertaining to the Applicant and other Development Team members to determine if the eligibility items identified in Section 2.6. have been met. If the requirements outlined in Section 2.6. have not been met, ADOH may reject the application. (3) Project Score - Each Project will be reviewed and receive points based on the scoring criteria set out in this QAP. Applications will be scored based SOLELY on the information supplied in the application. For Project Scoring information refer to Section 2.8 of this QAP.
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(4) Project Ranking - Each application must compete for available credits and will be ranked based on the points received. The Applicant must submit complete documentation to receive points. Notwithstanding the Project's score, if the Project's Market Demand Study does not adequately demonstrate strong new demand for the specific development being proposed without causing economic disruption to other comparable properties in the market, it shall not receive an Allocation. The Market Demand Study is required as a protection against saturation of Low-Income Units and to ensure absorption of new Units, (5) Notification of Local Government - ADOH will seek a letter of consent to the Project from the Local Government in the form of Exhibit B. The letter shall be signed by the City or County Manager (or other appropriate governmental official with specific knowledge of affordable housing needs) or be adopted by resolution of the governing body. If the Local Government does not consent to the Project, ADOH will reject the application. ADOH will notify the Local Government of an application and request comment on the proposed Project. The notification will be sent directly from ADOH following the Eligibility Review. ADOH will reject applications that are deemed unfavorable by the Local Government. (6) Reservation List - ADOH will issue a Reservation to those Projects that score highest in relation to all applications, meet the Eligibility Requirements, demonstrate a strong market demand, have received the written consent of the Local Government, and underwriting analysis. ADOH, based upon an evaluation of all applications and in its sole discretion, will issue a letter notifying the Applicant of the Reservation of Tax Credits, which shall include a request for payment of the Reservation Fee described in Section 6, and the requirements needed for the Applicant to satisfy the Carryover Allocation requirements. (7) Underwriting - ADOH will conduct the first of three underwriting reviews for all Projects. ADOH will establish the Reservation amount following the procedures in Section 2.2., "Maximum Tax Credit Reservation," and in Section 7, "Underwriting," of this QAP. ADOH may require clarifications or other information pertaining to the feasibility of the proposed Project. The Applicant must submit the supplemental underwriting information within 10 business days from the date of the written notification from ADOH. ADOH may reject applications during the underwriting process based on fundamental defects such as arithmetic errors or unfilled funding gaps. (8) Tax Credit Reservation - ADOH will determine the actual Reservation based upon the Applicant's request. Although the Reservation may not necessarily equal the Applicant's request, the Reservation shall not exceed the amount requested. The final Allocation shall be determined by ADOH, in its sole discretion, in accordance with Chapter 7 of this QAP. 2.6. Eligibility Requirements A. General Requirements. To ensure that all Projects have a high probability of completion, Applicant and Project must meet the eligibility requirements set forth in this Section 2.6. The Applicant must submit one original and two copies of a complete and accurate application organized in prescribed sequence and format, as required by this QAP and by the "Arizona Year 2005 Low-Income Housing Tax Credit Program Application Forms and Instructions," together with the non-refundable application fee. ADOH will not accept any additional information, amendment or change to the application after the Deadline Date. Notwithstanding the foregoing, ADOH may make inquiries to the Applicant, architects, engineers, financial institutions and the Local Governments in order to complete the eligibility documentation or to verify the information submitted. ADOH will consider such supplemental documentation for eligibility purposes only, and will not consider the supplemental information in scoring
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the application. ADOH eligibility review will include a review for geographic distribution of the Projects. An Applicant must be an existing legal entity authorized to conduct business in Arizona and in good standing with the office of the Secretary of State of Arizona. All documents that require a signature must be signed by the Applicant's authorized representative. ADOH will reject forms signed on behalf of an entity that is not duly formed or by a representative without authority. B. Eligibility. Applications must meet each of the following eligibility requirements. ADOH will reject the application if these requirements are not met. (1) Payment of ADOH fees - The application fee is due with the application. ADOH will reject any application that is not accompanied by the application fee. (2) Land Control (a) Land Control for all land needed for the Project must be evidenced by a written governmental binding commitment to transfer the land to the Applicant, a recorded deed or long term lease in the Applicant's name, a lease option or by a fully executed purchase contract or purchase option between the Applicant and record Owner of property. If a purchase contract or purchase option is submitted, the agreement must provide for, respectively, either a closing date or an initial term lasting until September 30th of the year in which the application is submitted. The Applicant must submit the following to ADOH (enclose all required documents at Tab I): (i) (ii) A "Status (Condition) of Title Report" for the property dated within 30 calendar days of the date of the application. For Projects that are not located on governmental or Tribal land, the Applicant must establish that it has legal control of the property by submitting a recorded deed, purchase agreement, purchase or lease option, lease agreement (for a term at least equal to the duration of the Extended Use Agreement), or a resolution by a governmental agency that owns the property.
(iii) For Projects that are located on governmental or Tribal lands, the Applicant must establish that it has legal control of the property by submitting: (1) an agreement between the Applicant and the Tribe or other government to enter into a lease of specific real property for a term at least equal to the duration of the Extended Use Agreement, and (2) a resolution of a Tribe or other governmental agency authorizing the Tribe or governmental entity to enter into the agreement. For Tribal leases only, ADOH will consider the length of the lease to be the original term of the lease plus the term of any option to renew, provided that the option to renew is held solely by the Applicant. (iv) In cases requiring use of powers of eminent domain by the Local Government, the Applicant must enclose evidence that a condemnation lawsuit has been filed for the specific parcels of real property upon which the Project will be situated together with the court's order of possession. (v) If the Applicant is submitting a purchase agreement, option, or lease agreement to acquire the real property, the purchase agreement, purchase or lease option, or lease agreement must specify purchase price or rental amount. The term of any lease agreement must be a minimum of 30 years.
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(vi) Any option, with available extensions, should be of sufficient duration that the Applicant can close on the land prior to year-end, subject to the issuance of the Reservation. (b) Applicants must acquire land and buildings for the Project from unrelated third parties in armslength transactions. An Applicant may file a written request for a waiver of this requirement with ADOH at the same time that the Applicant filed its application. A written request for waiver must include a full justification for the waiver and it must include, as attachments, an appraisal, which is less than six months old, prepared by an Arizona Certified General Real Estate Appraiser. ADOH may grant the waiver request if it determines the Applicant has demonstrated adequate justification and complied with the requirements of this paragraph. (3) Satisfactory Progress and Compliance - ADOH may reject applications from Applicants or for Projects having Development Team Members that do not meet the requirements of Section 4.2 of this QAP or have failed to comply with the Tax Credit requirements and conditions in previous applications or developments including, but not limited to, payment of any other fees as described under Subsection B(1) of this section and Chapter 6 of this QAP. (4) Qualified Project - The Project must be a qualified residential rental Project, which meets the requirements of IRC Section 42. (See Legal Opinion, Exhibit E.) (5) Placed in Service - The Project must not have been Placed in Service prior to the date the Applicant filed the application. (See Legal Opinion, Exhibit E.) (6) Form C and Applicant's Certifications - FORM C must be complete and accurate, and signed by the appropriate party. The Applicant is required to make certain certifications in the Applicant Affidavit, Release, and Oath (included in Form C, "Low-Income Housing Tax Credit Application") including a certification that ADOH's minimum design features (Exhibit D) will be complied with in the construction of the Project and that, if they are not, an acknowledgement that all credits awarded to the Project may be surrendered to ADOH. Enclose at Tab C, Form C and the Applicant Certification. (7) IRS Form 8821 - Applicants are required to submit complete and executed copies of IRS Form 8821, "Tax Information Authorization," for the Applicant and each Development Team Member authorizing the Arizona Department of Housing as "Appointee" to receive from the IRS available information regarding any Financial Beneficiary's (see Chapter 9) conduct of its business with the IRS relating to the Low-Income Housing Tax Credit Program. Such information received from the Internal Revenue Service may be used by ADOH in its sole discretion to disqualify an application pursuant to Chapter 4 of this Allocation Plan. Enclose IRS Form 8821 at Tab C, behind the Applicant Affidavit, Release, and Oath. (8) Legal Opinion - Must be on professional letterhead and in substantially similar form to Exhibit E "Sample Legal Opinion". However, it should be noted that the attorney providing the opinion should be as detailed as possible describing all the unique characteristics of the development and how those characteristics qualify for the Tax Credit program. The Legal Opinion must clearly address the 10-year rule regarding the eligibility for acquisition tax credits (See Chapter 9). If the legal opinion submitted in the application is unsatisfactory, ADOH will require the Applicant to update the legal opinion or require an additional opinion from another attorney at the sole expense of the Applicant. Enclose Legal Opinion at Tab D. (9) CPA Opinion - Must be on professional letterhead and in substantially similar form to Exhibit E-1 "Sample CPA Opinion." Enclose CPA Opinion at Tab E.
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(10) Legal Formation The Applicant must submit evidence that the Applicant and Developer are duly formed legal entities authorized to transact business in the State of Arizona and in good standing with the Office of the Secretary of State of Arizona. Enclose at Tab F of the application the Certificates of Good Standing or Existence, as appropriate, , and all other documentation required under this section. (a) Corporations. If the Applicant or Developer is incorporated in Arizona, a Certificate of Good Standing, issued by the Arizona Corporation Commission and dated not earlier than 30 days prior to the Deadline Date, should be submitted. Applicants and Developers incorporated in another state and doing business in Arizona should submit the following: a Certificate of Good Standing or its equivalent from the state of incorporation dated not earlier than 30 days prior to the Deadline Date and a Certificate of Authority to Transact Business in Arizona or a Certificate of Good Standing for such foreign corporation, issued by the Arizona Corporation Commission and dated not earlier than 30 days prior to the Deadline Date. (b) Limited Partnerships. If the Applicant or Developer is a limited partnership organized under the laws of Arizona, a Certificate of Existence, issued by the Arizona Secretary of State and dated not earlier than 30 days prior to the Deadline Date, should be submitted. Applicants and Developers organized under the laws of another state and doing business in Arizona should submit the following: a Certificate of Existence or its equivalent from the state of organization, dated not earlier than 30 days prior to the Deadline Date, and an Arizona Certificate of Foreign Limited Partnership from the Arizona Secretary of State or a Certificate of Existence dated not earlier than 30 days prior to the Deadline Date. (c) Limited Liability Companies. If the Applicant or Developer is a limited liability company organized under the laws of Arizona, a Certificate of Good Standing, issued by the Arizona Corporation Commission, dated not earlier than 30 days prior to the Deadline Date, should be submitted. Applicants and Developers organized under the laws of another state and doing business in Arizona should submit the following: a Certificate of Good Standing or its equivalent from the state of organization dated not earlier than 30 days prior to the Deadline Date and an Arizona Certificate of Authority to Transact Business in Arizona issued by the Arizona Corporation Commission and dated in the year of application or a Certificate of Good Standing for such foreign limited liability company dated not earlier than 30 days prior to the Deadline Date. (11) Non-Profit Information - Under Tab G, the Applicant must submit evidence that the Applicant is a current 501(c)(3) or (4) entity. In addition, the Applicant must execute and enclose at Tab G Form G, a "Certificate of Non-Profit Participation," and all other evidence required. In the case where a governmental or tribal agency is applying for non-profit consideration, it must provide the appropriate 501(c)(3) or (4) documentation, a letter from the executive officer of the Local Governmental or tribal agency. "Non-profit Projects" are Projects in which a qualified non-profit organization (i.e., an IRC Section 501(c)(3) or (4) organization) owns an interest (directly or through a partnership) and materially participates within the meaning of IRC Section 469(h)(i) in the development and operation of the Project throughout the compliance period. The non-profit organization may not itself be an Affiliate of or controlled by a for-profit organization. Material participation is defined at IRC Section 469(h)(i) as involvement "in the operations of the activity on a basis that is regular, continuous and substantial." The ADOH defines "substantial" as having the authority or right to, among other things, participate in the decision-making process for design, location, materials, and management of the Project. In addition, ADOH requires that the non-profit organization provide on a best-evidence basis: (1) IRS documentation of status 501(c)(3)
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or 501(c)(4); (2) a description of the nonprofit organization and its activities, to include the promotion of affordable housing in its articles; (3) evidence that it or its officers or members have experience in developing or operating low-income housing; (4) evidence (in the Letter of Intent received from the investment syndicator) that it holds the right of first refusal to acquire the Project following the fifteen-year compliance period; (5) evidence that it has developed an operating plan for the Project covering its role in developing and managing the Project, including its participation in the Developer fee; its control of Project reserves; its plan for maintenance, replacement, and renovation; and its oversight of marketing and of compliance with IRC Section 42; (6) the names of board members of the nonprofit organization; (7) the names and resumes of all paid full-time staff; (8) the sources of funds for annual operating expenses and current programs; (9) evidence of financial capacity in the form of balance sheets and income statements for the past two years; and (10) Form G, "Certificate of Non-Profit Participation," certifying that the nonprofit organization will materially participate in the development and operations of the Project on a basis which is regular, continuous, and substantial. (12) Development Team The Applicant must enclose at Tab H, Form H, an identification of development parties and financial statements of the Developer or Co-Developer, which must be in full and final form. Applications that do not identify a contractor must do so prior to ADOH issuing a final Reservation. The Developer must demonstrate that it possesses the experience and capacity to successfully complete a proposed Project and any other Projects under construction, and that it has developed Projects of comparable size and financing complexity. If such capacity and experience are not demonstrated, ADOH may reject the application. ADOH may check the references and credit of the Applicant and other Development Team members as it deems necessary to determine Developer capacity. (13) Identity of Interest- There exists an "Identity of Interest" between the Developer, the Management Company or architect and any other Development Team member or prospective member if there is any financial or ownership interest, direct or indirect, between the Developer and the other Person. Where there is an Identity of Interest between the Developer and the Builder, the total Developer, Consultant, and Builder fees will be limited to the developer fee in Section 7 plus Builder's overhead and general requirements. See Section 7.2. ADOH will review other identities of interest among members of the Development Team and may, reduce fees to be paid by the Developer to another Development Team member. Enclose at Tab H of the application Form H, disclosing specifically in Section 11 of Tab H every Owner of the Developer, the Builder, and the Consultant. (14) Zoning The Applicant must enclose a fully completed Form J. FORM J must be signed by the appropriate governmental planning and/or zoning official and must evidence that the proposed site is zoned or conditionally zoned for the proposed use. Developments sited on land that is not subject to zoning or which is zoned agriculture are exempt from this eligibility requirement. For sites with conditional zoning approval for the proposed use, documentation from the Local Government stating the specific conditions to be satisfied must be included under Tab J. ADOH may determine if the conditions are minor. Projects that are not zoned with minor conditions or are conditionally zoned must obtain final approval by May 15th of the year following the year in which the Carryover Allocation is made. (15) Financial Ability to Proceed - As evidence of commitments for funding sources the Applicant must enclose at Tab K the following required documents: (a) A Letter of Interest or Intent for both construction period and permanent financing, with a term sheet, where applicable, from each funding source for, in the aggregate, the full amount
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of the Project's construction and permanent financing needs (including Tax Credit investors). For all government sources of funds, submission of a copy of the Award Letter is required. However, Applicants seeking funding from a governmental or quasi-governmental funding source, other than State Housing Funds, that has not issued a funding decision prior to ADOH's application deadline, must submit a Letter of Interest or Intent from the funding source with the application. (b) The Letter of Interest or Intent from each lending source (permanent and construction), excluding any equity investors, should include (i) a term sheet (ii) amount of the loan, (iii) interest rate, including all points, (iv) amortization period, if applicable, (v) term of the loan, (vi) loan-to-value factor, (vii) maximum and minimum debt service coverage allowable (not required if the permanent lending source is a governmental or tribal entity), (viii) all commitment and/or origination fees, (ix) and a description of all other fees directly attributed to the funding of the loan. (c) For a Developer's loan or Deferred Developer's Fee, insert in the Permanent Financing Table of the application the amount needed to balance sources of funds with Total Estimated Cost. Documentation for Deferred Developer Fee will be required with the final underwriting package. (d) ADOH may determine whether the Letters of Interest or Intent, Award Letters, or Commitment Letters are satisfactory; whether a lender or investor possesses the financial capacity to make a specific loan or investment; and whether lenders are licensed to conduct business in the State. A change in the financing source or financing terms after Reservation of credits may result in all or a part of the credits being recaptured or reduced by, or returned to ADOH. (e) Except for those Applicants who have submitted an application for State Housing Funds, if an Applicant intends to use a funding source to fund a funding gap, the Applicant must include a Letter of Interest or Intent from the prospective Lender of gap funds and a Letter of Interest or Intent from an alternative Lender as well. (f) The application must demonstrate that the Project will be financed in such a manner that maximum mortgage payments supportable by Project cash flow are made by the Owner. Applications with coverage ratios above 1.30 for Projects with less than 50 Units or 1.20 for Projects of 50 Units or more will be rejected unless the Applicant or lender has submitted a waiver request justifying higher debt service coverage. Coverage ratios above 1.30 or 1.20, as applicable, must be approved by ADOH. Applications submitted with coverage ratios below 1.15 will be rejected unless the Applicant provides an irrevocable source of adequate additional funds. (g) ADOH may reject any application with unfilled funding gaps. See Section 7.13. ADOH will consider exceptions only in cases where a State Housing Fund application has been submitted concurrently with the application for Tax Credits, or letter of credit in the event other funding sources are not available. (h) If applicable, include a commitment from the entity facilitating any operating deficit reserve/escrow funds. See Section 2.6(B)(23).
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(16) Market Demand Study The Applicant must submit a Market Demand Study at Tab L. The Market Demand Study must be in final form, executed by the analyst and include a statement from the analyst that the report was prepared according to ADOH's Market Demand Study Guide (see Exhibit L), that the information included is accurate, and that the report can be relied upon by ADOH to present a true assessment of the housing market in the primary area of the proposed development. ADOH may determine the Market Demand Study supplied with the application to be unsatisfactory and may require additional information at the sole expense of the Applicant. Also see Section 2.4., "Application Format." (17) Special Needs Populations - Applicants that intend to serve Special Needs Populations must complete and execute Form M describing services to be provided and must include any service plans or agreements. Enclose Form M-1, and all documentation required by Form M-1 at Tab M as detailed in Section 2.8(10). (18) Priority Market Need The Applicant must complete FORM N and enclose it at Tab N. Tab N must be accurate and match page 8 of Form C. Tax Credit Unit income and rent thresholds cannot exceed the maximum established by IRC Section 42 (60% AMGI when using the 40/60 convention or 50% AMGI when using the 20/50 convention). The maximum rent threshold is based on the income level selected on FORM N. Example: If the 40% AMGI rent level is selected on FORM N, then the rents may not exceed the maximum allowable rent per IRC Section 42. However, the income of a qualified tenant may exceed the 40% AMGI level by a maximum variance of 5% unless IRC Section 42 or other federal requirements prohibit such a variance. (19) Tenant Ownership The Applicant must include at Tab O of the application: (1) a Letter of Intent from a qualified non-profit organization to purchase the Units, including a calculation of the purchase price and (2) a detailed description of the ownership proposal that includes financial counseling services plan, tenant identification, Unit pricing in accordance with IRC Section 42(i)(7), a program for down-payment assistance, a marketing strategy, and a proposed sale agreement. (20) Historic Preservation - The Applicant must enclose at Tab P all documentation evidencing historic preservation as detailed in Section 2.8.(F)(1), "Historic Preservation." (21) Monitoring Compliance The Applicant must include at Tab Q a plan that describes the method, training and education of the management agents responsible for the daily adherence to IRC Section 42, State and local requirements. (22) Marketing Plan- The Applicant must include at Tab R an affirmative marketing plan in accordance with fair housing requirements. (23) Pro Forma and Operating Expenses -The Applicant must include at Tab S a 15-year pro forma and operating expense data. The 15 year pro forma must be signed by the first mortgagee (or the syndicator/investor if the Project is funded 100% by equity) that exclusively reflects the following language verbatim: "We acknowledge that this pro forma substantially matches the assumptions used in our underwriting and due diligence of the mortgage (or equity investment)." The pro forma must precisely reflect the rent structure in the application, all lenders' assumptions such as principal and interest payments, non-rental income, detailed operating expenses, required reserves, annual fees, debt service coverage ratio etc., as well as other characteristics that impact the financial feasibility (for example, cost of Supportive Services). The 15Year pro forma must mirror the operating assumptions and rent structure as shown in the application.
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If the pro forma reflects negative cash flow in any year, the application shall demonstrate the funding and utilization of an operating deficit escrow account or describe the source of the operating deficit funds. A commitment from the entity facilitating the operating deficit reserve/escrow funds needs to be included at Tab K with the other funding source documents. The 15 Year pro forma may reflect rental assistance only if such assistance is evidenced at Tab K with the other funding source documents. Applicants shall submit at least two forms of data supporting the operating expenses stated in the pro forma (for example, database information from similar Projects, comparable Project information as illustrated in a Market Demand Study, IREM information or Real Data information). ADOH may require submission of the audited financial statements for comparable Projects owned by the Applicant. Rehabilitation Projects may submit 3 years of historical information as evidence of operating expense assumptions. (24) Project Location The Applicant must include at Tab T of the application: (1) an 8x10 map or fold-up map clearly indicating the Project location; (2) detailed directions to the site from the nearest major intersection; (3) an additional 8x10 or fold-up map indicating the following facilities located within 2 miles of the proposed development: a. b. c. d. e. f. g. Existing LIHTC or any other governmental subsidized housing developments Retail centers Medical complexes Recreational Facilities Educational Facilities Large scale employment centers Public transportation
(25) Community Revitalization - The Applicant must enclose at Tab U the following: (i) a copy of the municipal ordinance or resolution by which the governing body of the municipality or county designated the area as a housing priority area or evidence the property is located in one of the following: (a) a federal empowerment zone or federal enterprise community, (b) a Redevelopment Area (c) an established HUD Neighborhood Revitalization Strategy Area, or (d) a geographic area or parcel of property that has been established by the Local Government as part of a comprehensive affordable housing plan and (ii) a map showing boundaries of the housing priority area and the location of the Project within the housing priority area. The map must clearly show the names of the roads, streets or other boundaries of the housing priority area and also clearly reflect the location of the Project on such roads or streets. If the resolution or ordinance does not include the specific boundaries of the housing priority area, then also include Form U, signed by an authorized representative of the municipality or county, stating that the Project is within the boundaries of the designated housing priority area. (26) Utility Allowance Schedule The Applicant must include at Tab V of the application: (1) letters from the local utility providers indicating water, sewer, and electrical utilities are available to the site; and (2) a copy of the most recent and current utility allowance schedule from the local Public Housing Authority, utility company or other source. The current utility allowance schedule is
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the basis for the utility allowances entered on page 6 of the application. The utility allowance schedule, published by the local Public Housing Authority, utility company, or other source (see IRS Regulation 1.42-10 to determine the appropriate source of the schedule), must be accompanied by a letter from the issuing authority dated no sooner than 30 days prior to the date of application submission. The letter from the issuing authority must state that the utility allowance schedule submitted is the current schedule. (27) Drawings and Plans The Applicant must include at Tab W the preliminary drawings and renderings of the development. Include (1) a site plan showing the general development of the site, including the building and parking location and proposed landscaping; (2) if the Project proposes a community facility, include the community building layout and net floor area; and (3) Elevations for each proposed building and clubhouse. The Applicant must submit plans and specs (submitted to the Local Government for approval) at the time of Carryover. Also enclose at Tab W, completed Exhibit W. (28) Property Design Standards - As applicable, all newly constructed and rehabilitated properties must meet the current Uniform Building Code, the National Standard Plumbing Code, the National Electric Code, the 2000 International Energy Code, the International Building Code and the Federal Fair Housing Act (42 U.S.C. 3601, et seq.), the Arizona Fair Housing Act (A.R.S. 41-1491 through 41-1491.37), and HUD Fair Housing Regulations (24 C.F.R. Part 100, subpart D), the Uniform Federal Accessibility Standards (Section 504 of the 1973 Rehabilitation Act) and the Americans with Disabilities Act (42 U.S.C. 12101 through 12213). The Applicant must include at Tab W, completed Exhibits W, W-1, and W-2 signed by the Architect for the Project and the general contractor respectively for the Project certifying that the Project meets the above design standards. (29) Lead-based Paint - If the Project includes a building or structure that was built before January 1, 1978, the Applicant must have a lead-based paint inspection completed by a certified lead-based paint inspector. That inspector must prepare and the Applicant must include in its application at Tab W a complete copy of that report. If the report indicates the presence of lead-based paint, the Applicant must include at Tab W : (1) a written amelioration plan for the elimination and disposal or encapsulation of the lead-based paint, and (2) a written on-going maintenance plan to manage the lead-based paint. (30) Project Schedule The Applicant must complete and execute Form X and insert it at Tab X. (31) Capital Needs Assessment - Applicants are required to provide to ADOH a Capital Needs Assessment ("CNA") for all rehabilitation and combined acquisition and rehabilitation Projects. Insert at Tab Y a CNA that meets the requirements outlined below. Applicants must include a statement from the architect or engineer that the report was prepared according to ADOH's CNA Guidelines and that the information included is accurate and that the report can be relied upon by ADOH to present a true assessment of the proposed rehabilitation budget and immediate repairs required at the property. ADOH may determine the CNA report is unsatisfactory and may require additional information at the sole expense of the Applicant. The CNA shall examine and analyze the following building components: Site, including topography, drainage, pavement, curbing, sidewalks, parking, landscaping, amenities, water, storm drainage, gas and electric utilities and lines;
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Structural systems, both substructure and superstructure, including exterior walls and balconies, exterior doors and windows, roofing system, and drainage; Interiors, including Unit and common area finishes (carpeting, vinyl tile, plaster walls, paint condition, etc.), Unit kitchen finishes and appliances, Unit bathroom finishes and fixtures, and common area lobbies and corridors; Mechanical systems, including plumbing and domestic hot water, HVAC, electrical, and fire protection; and Elevators.
The CNA report shall include the following major parts: Critical Repair Items. All health and safety deficiencies, or violations of housing quality standards, requiring immediate remediation. If the Project has tenants, these repairs are to be made a first priority. Two-Year Physical Needs. Repairs, replacements, and significant deferred and other maintenance items that need to be addressed within 24 months of the date of the CNA. Include any necessary redesign of the Project and market amenities needed to restore the property to the standard outlined in this QAP, Exhibit D. These repairs are to be included in the development budget and funded by construction-period sources of funds. Long-Term Physical Needs. Repairs and replacements beyond the first two years that are required to maintain the Project's physical integrity over the next twenty (20) years, such as major structural systems that will need replacement during the period. These repairs are to be funded from the reserves for replacement account. Analysis of Reserves for Replacement. An estimate of the initial and monthly deposit to the reserves for replacement account needed to fund long-term physical needs, accounting for inflation, the existing reserves for replacement balance, and the expected useful life of major building systems. This analysis should not include the cost of the critical repair items, the two-year physical needs, or any work items that would be treated as operating expenses.
The professional preparing CNA report must: (a) (b) Be an architect or mechanical/structural engineer licensed by the State. Conduct site inspections of a minimum of 35 percent of all Units. Units shall be randomly sampled while taking into consideration the Unit size mix, e.g., one-bedroom, twobedroom, etc. All vacant Units must be inspected. Identify any physical deficiencies as a result of (i) visual survey, (ii) review of pertinent documentation, and (iii) interviews with the property Owner, management staff, tenants, community groups, and government officials. Identify physical deficiencies, including critical repair items, two-year physical needs, and long-term physical needs. These should include repair items that represent an immediate
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(c)
(d)
threat to health and safety and all other significant defects, deficiencies, items of deferred maintenance, and material building code violations that would limit the expected useful life of major components or systems. (e) Explain how the Project will meet the requirements for accessibility to persons with disabilities. Identify the physical obstacles and describe methods to make the Project more accessible, and list needed repair items in the rehabilitation plan. Prepare a rehabilitation plan, addressing separately all two-year and long-term physical needs.
(f)
(g) Prepare a replacement reserve schedule, including an estimate of the initial and annual deposits, accounting for inflation and based on a 20-year term. (h) Conduct a cost/benefit analysis of each significant work item in the rehabilitation plan (items greater than $5,000) that represents an improvement or upgrade that will result in reduced operating expenses (e.g., individual utility metering, extra insulation, thermo-pane windows, setback thermostats). Compare the cost of the item with the long-term impact on rent and expenses, taking into account the remaining useful life of building systems.
(32) Internet Access - All Units shall be wired with three networks back to a central location: 1) a network for phone using CAT-5 wire; 2) a network for television using COAX cable, and 3) a network for data using CAT-5 wire. 2.7. 2005 Set-Asides (A) BASED ON SCORING. An Allocation will not be made to more than one family, and one elderly category Project (one Project for each Special Needs Project category) with no more than $850,000 being devoted to Special Needs Populations Projects per Tax Credit round in cities, towns, and Census Designated Places with populations of 50,000 or less according to the 2000 U.S. census data. As a priority, and at the sole discretion of ADOH, ADOH will award Tax Credits first to the highest-scoring applications meeting all Eligibility requirements and Underwriting Criteria in each of the following setaside categories: SCORING SET-ASIDES A total of $1.2 million is available for HOPE VI Projects Acquisition/Rehabilitation development located in an urban area where 100% of the Units undergo rehabilitation Acquisition/Rehabilitation development located in a rural area where 100% of the Units undergo rehabilitation A total of $850,000 is available for Projects allocating 100% of their Units to Special Needs Populations. A total of $1,000,000 for Senior Projects allocating 100% of their Units to Seniors (62 or older or handicapped) with Supportive Services. A total of $850,000 for Projects located on Tribal Lands One Project located in each of the four Rural Councils of Governments Regions (see Chapter 9, "Council of Governments"). In cases where another set-aside has provided a development within a particular Rural Council of Governments Region, no additional development shall be provided by this set-aside.
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HOPE VI Acquisition/Rehabilitation Urban Acquisition/Rehabilitation Rural Special Needs Populations Senior Set-Aside Tribal Land Rural Council of Governments
Non-Profit Set-Aside
20% of the State's annual credit authority is set-aside for "non-profit Projects," as defined in Section 2.6(B)(11) of this QAP. Only non-profit Projects that meet all of the eligibility requirements will be eligible for an Allocation of non-profit set-aside credits. The Allocation of non-profit set-aside credits will be based on the rankings of non-profit Projects under the scoring system. 10% of annual credit authority is set aside for Projects to be located in rural areas. For purposes of this paragraph, "rural areas" shall mean counties fewer than 400,000 in population according to the most recent United States decennial census and "Census County Divisions" under 50,000 in population in counties with populations of 400,000 or more according to the most recent United States decennial census. These Projects may compete for overall credit authorization. If no application meeting the requirements of this QAP for rural areas is submitted, rural set-aside funds may be pooled with non-set-aside funds for Allocation to any Project.
Rural Set-Aside
(B) In its sole discretion, ADOH may limit the number of developments in a specific market or geographical area based on concentration or negative impact in a given market area. In the case where multiple applications are submitted for a given market area, ADOH will select the application that scores the highest within its set-aside category. If the Project does not fall within a set-aside category, selection will be based on scoring and new market need. If multiple applications are filed for a given market area proposing to serve different populations (e.g., elderly, family or Special Needs Populations), ADOH will analyze the applications to ensure that neither Project will be unnecessarily redundant or may cause harm to the other. (C) DIRECTOR'S DISCRETION. $850,000.00 of the State's annual Low-Income Housing Tax Credit authority is reserved by and for the Director of ADOH to allocate in the Director's sole and absolute discretion to Projects that need additional credits because of technical errors of ADOH or Projects with severe hardships. (1) SEVERE HARDSHIP. Requests based on severe hardships may be submitted from 1-3-05 to 8-15-05 along with an additional application fee of $2,500. Hardship requests must be documented to the satisfaction of ADOH and must demonstrate the existence of an unforeseen hardship or emergency situation where the completion of the Project is jeopardized without an award of additional Tax Credits. (2) MAXIMUM CREDIT ALLOCATION. Applicants cannot apply for Tax Credits from the Director's discretion if they have already received the maximum credit Allocation allowed by eligible basis limits, gap financing limits or the Maximum Tax Credit Reservation limits. (3) UNRESERVED SET-ASIDE. Any Director's Discretion Set-Aside authority not reserved to specific Projects by August 15, 2005, or such earlier date that may be selected by the Director, will be released to be used for Projects on the Year 2005 waiting list. (D) Those Projects meeting the eligibility requirements, but not ranking high enough to receive Tax Credits during the Year 2005 application round, will be placed on a waiting list and remain eligible to receive any Tax Credits returned during the Year 2005. Depending upon availability returned Tax Credits will be allocated to the next highest scoring Year 2005 Project(s) in the queue meeting threshold criteria as described above.
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2.8. 2005 Project Scoring (A) ADOH will conduct scoring based solely on the information submitted in the application. (B) A self-scoring sheet will be provided with the application and will require the Applicant's signature. It is to be submitted behind the cover letter at Tab A. (C) ADOH will not award points if the correct forms or required information are not submitted, or are not submitted at the correct tab. (D) ADOH will count Employee Units (see Chapter 9, Definitions) as 60% Low-Income Units in making scoring calculations. (E) The Applicant's commitment to serve specific populations as set-asides shall be binding for the duration of the Extended Use Period and shall be included in the recorded Extended Use Agreement. ADOH will monitor resident files to determine that the set-asides are being honored. (F) ADOH will score Projects in the following 14 categories: (1) Historic Preservation: 25 points 15 points for (i) A letter from the National Parks Service or State Historic Preservation Office (SHPO) identifying the structure as individually listed in the National Register of Historic Places, or (ii) A structure certified by the National Parks Service, SHPO Office or Certified Local Government as contributing to a Register District (a Register District is a designated area listed in the National Register, or listed under State or Local Statute as substantially meeting the requirements for listing of districts in the National Register), or (iii) Location of a Project within an area that has been zoned an historic area. The Applicant must include the municipal zoning ordinance that was adopted on or before the Deadline Date and a letter from the local municipality indicating that the design will meet the requirements outlined in the zoning ordinance. (At Tab P, submit the appropriate evidence as identified above.) 10 points- for Projects that have received a preliminary approval from SHPO, National Parks, or the Local Government for historic Tax Credits. (At Tab P, submit the preliminary approval for the Historic Tax Credits.) (2) Acquisition/ Rehabilitation: 30 points Projects containing Acquisition/Rehabilitation and New Construction will be given points in this category only if the rehabilitation Units total 50% or more of the total Project and the Acquisition/Rehabilitation is 100% of the acquired Units. The type of rehabilitation improvements and the amount of rehabilitation costs shall be appropriate for the Project and proportionate to the benefit as determined by ADOH. ADOH will utilize the services of a cost estimator in determining whether the rehabilitation costs are reasonable. The Applicant shall be responsible for the costs of the cost estimator. Cost of rehabilitation per Unit is determined by adding Direct Construction Costs and appliances, then dividing that sum by the number of qualified rehabilitation Units. Applicants should indicate that the Project is a Rehabilitation or Acquisition/Rehabilitation in the Cover Letter of the application (Tab A) and on Form C, as applicable.
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Cost of Rehabilitation per Unit $15,000+ 14,999-10,000 9,999-5,000 (3) Tenant Ownership: 3 points
Points Awarded 30 15 10
3 points - will be awarded if 100% of the Project is designed for tenant ownership after the 15-year compliance period. (At Tab O, provide: (A) Letter of Intent from a qualified non-profit organization to purchase the Units, including how the purchase price will be calculated at the end of the 15 year compliance period should no qualified tenants be identified; (B) a detailed description of the ownership proposal to include: (i) financial counseling services; (ii) how the eligible tenants will be identified and offered the right of first refusal; (iii) how the Units will be priced in accordance with IRC Section 42(i)(7); (iv) down payment assistance; (v) marketing strategy; and (vi) proposed sale agreement. Applicants that intend to utilize these points shall be required to execute and record an Extended Use Agreement that indicates the provisions set forth above for the remaining compliance period. Also, there are additional fees associated with these points. See Chapter 6, Fees. Only Projects consisting of exclusively single family, duplex or four-plex designs with no more than 60 Units are eligible for this scoring item. (4) City, Town or County not receiving an Allocation of Tax Credits in past: 20 points 20 points - will be awarded to Projects that are located within a City, Town, unincorporated area in any County, or tribal reservation within the State that has not had an Allocation for a Project within its geographical limits within the last several years. This determination will be made by type of Project (i.e. Family, Elderly, Special Needs Populations). A list of qualified Cities, Towns or Counties is available through ADOH. Note: The Market Demand Study must also support the need for affordable housing located in these areas. Number of Years 10+ 5-9 3-4 Points Awarded 20 10 5
(5) Developer Experience Points for New Construction or Rehabilitation: Maximum of 15 points awarded for Developer experience category. Up to 15 points are awarded for Developer experience with either rehabilitation or new construction of residential rental Projects using the LIHTC program or significant participation by a Developer(s) with a demonstrated track record in the timely development of new construction or rehabilitation of residential rental housing. In scoring this category, ADOH will count the number of residential rental Projects Placed in Service by the Developer, any Co-Developer, and any Person who owns part of either the Developer or CoDeveloper. These points are not available for Consultants or other development team professionals. If a Project relies on a Co-Developer's experience, the Applicant must submit to ADOH, as part of Tab H, a written agreement between the Developer and the Co-Developer that outlines the length of time that the CoDeveloper will be associated with the development of the Project and evidencing the scope of the CoDeveloper's participation in the development of the Project.
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Attach at Tab H Form H-1 and any additional lists of residential rental housing Projects developed by the Developer, any Co-Developer and any Person who owns part of either the Developer or Co-Developer. (Include the name of the Developer or other Person, name of the Project, address of the Project, city, state, number of rental Units, and the role the Developer played in development of the Project.) Number of Projects 5+ 3-4 Points Awarded 15 12
(6) Rent Restricted Units Set-Aside for 50% and 40% AMGI Tenants: a maximum of 35 points max for any combination of set-asides of Low-Income Units at 50 or 40 AMGI (15 points for 50% AMGI and 20 points for 40% AMGI). See Section 2.6 (18) Priority Market Need for guidance regarding the income and rent restrictions regarding these points. Attach at Tab N of the application Form N, "Commitment to Lower-Income SetAside." *(NOTE: This calculation is based on total Units in the Project).
50 % AMGI Rural Points 51% + = 15 21-50% = 10 10-20%= 5
50% AMGI Urban Points 61% + = 15 41-60%= 10 20-40%= 5
Up to 20 points are awarded for rent restricting a percentage of total Units for populations at 40% AMGI. Rents will be restricted for the Low-Income Units to ensure that households pay no more than 30% of the applicable income limit during the Extended Use Period.
40% AMGI Rural Points 41%+=20 16-40%=15 5-15%=10
40% AMGI Urban Points 51%+=20 21-50%=15+ 5-20%=10
(7) Development Location - Community Revitalization Projects: 15 points 15 points will be awarded if the proposed Project is located within a geographic area or parcel of property for which a specific housing or an economic development objective has been established by the local, federal or state government. These may include the following: Federal Empowerment Zones or Federal Enterprise Communities Redevelopment Areas Established HUD Neighborhood Revitalization Strategy Areas Established Colonias as designated by the United States Department of Agriculture or HUD Geographic areas or parcels of property that are established by the Local Government as part of a comprehensive affordable housing plan.
Include at Tab U: (i) evidence the property is located in the above areas or a copy of the municipal ordinance or resolution by which the governing body of the Local Government designated the area as a
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housing priority area and (ii) a map showing boundaries of the housing priority area and the location of the Project within the housing priority area. The map must clearly show the names of the roads, streets or other boundaries of the housing priority area and also clearly reflect the location of the Project on such roads or streets. If the resolution or ordinance does not include the specific boundaries of the housing priority area, then also include Form U, signed by an authorized representative of the municipality or county, stating that the Project is within the boundaries of the designated housing priority area. (8) Projects in a QCT, DDA or outside an MSA: 10 points If a Project is located within a Qualified Census Tract (QCT) or Difficult Development Area (DDA), or outside of a Metropolitan Statistical Area (MSA) as designated by HUD the Project will be awarded 10 points. (9) Family Project: 20 points
20 points will be awarded for Projects in which at least 40% of the Low-Income Units are three or four bedrooms and have a minimum of two bathrooms. (10) Project Zoning: 10 points 10 points are awarded for successful documentation that zoning is in place for all Project land. Zoning that has been conditionally approved by the Local Government will receive points only if the Applicant submits documentation from the Local Government stating the specific conditions to be satisfied and ADOH is satisfied that the conditions are minor. On sites that don't require zoning, the Applicant must submit a letter from the appropriate governmental entity stating such. For Projects located on Tribal lands, a Tribal resolution may be used to substitute for zoning certification. The Tribal resolution should state that the Project will be located in an area where the zoning requirements established by the Tribal government permit the Project or, if there are no specific zoning requirements, in an area in which the Tribal government authorizes the Project to be constructed and operated. Include at Tab J of the application ADOH Form J, "Project Zoning Certification," and other documentation required under this section. (11) Special Needs Populations: 10 points 10 points will be awarded to Projects of which at least 25% of the Project serves Special Needs Populations. ADOH will review all service agreements and pre-approve applications that intend to utilize these points. The following information must be submitted to ADOH no later than February 13, 2005 to receive an evaluation letter. ADOH will respond with an evaluation letter no later than March 1, 2005. Applicants must provide evidence of past experience with the particular Special Needs Populations to be served, a client source (e.g. letters from a referring agency, etc.) and service agreement for each population served, which also must be inserted at Tab M. This agreement must be on the service entity's letterhead, signed and dated by both parties. The Applicant must also submit under Tab M other documentation that demonstrates previous experience for each entity that will be providing services. Also submit Forms M and M-1. Applications that are not pre-approved by ADOH or do not demonstrate satisfactory experience serving Special Needs Populations will not be eligible for these points. ADOH will require that the applicable set-aside be included in the Extended Use Agreement before issuing a final Allocation and will monitor performance of these set-asides throughout the compliance period.
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(12) Senior Projects: 10 points for Projects serving 80% or more elderly individuals (at least one individual in the household must be 55 years of age or over). 15 points for Projects serving individuals who are 62+ years of age or who are disabled, and must offer Supportive Services (see Chapter 9). The tenant file must include proof of date of birth or proof of the qualifying disability. The Project will not contain 3 or 4 bedroom Units. Applicants should indicate this intention on Form C of the application and enclose at Tab M of the application Form M, "Commitment to Set-Aside Units," along with the supporting documentation required by that form, and Form Z. (13) Mixed Income: 5 points This category offers an incentive to develop Projects for mixed income populations. Points will be awarded based on the percentage of market rate Units in the Project (total market rate Units divided by total Units in the Project). % Market Rate Units 50% 40-49% 30-39% 20-29% 10-19% (14) Rural Development: 15 points 15 points are available for new construction Projects that are funded by United States Department of Agriculture (USDA) through the Section 515/514/516 and Section 538 programs. Acquisition/rehabilitation Projects funded by USDA are eligible for points under the acquisition rehabilitation category but are not eligible for points under this category. (15) Water Conservation: 10 points 10 points are available for Projects, which include water conservation devices into the Project, e.g., alternative and low-flow toilets, low-volume showerheads, aerator or flow restrictor devices in the faucets, front-loading or horizontal axis washers, and Xeriscape Landscaping. 2.9 Rents The project's LIHTC rent should be 10% below market rents in the area the Project is going to be built, as evidenced by the Market Demand Study. 2.10. Tiebreaker In the event two Projects in the queue have the same score, the following tiebreaker will be used. Points 5 4 3 2 1
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Tiebreaker Criteria (possible points = 12) 1. Efficient use of credits per tax credit Unit: 1 point (calculation will be made before QCT and DDA adjustments) 2. Rehabilitation Projects: 4 points 3. Rural: 1 point 4. Sole Non-profit: 1 point 5. Efficient use of Tax Credits per Occupant: up to 2 points 6. Direct Construction cost per Bedroom less land and soft costs: up to 3 points These are not bonus points and are not added to the Project's total score. This scoring system only determines the ranking of Projects with the same final score under the Program's competitive scoring process. 2.11. Project Ranking All of Arizona's available Year 2005 annual Tax Credit authority, and any Tax Credits returned after January 1, 2005 or made available from the National Pool, will be available for Reservation in 2005, except that portion of the Tax Credit authority reserved in the Director's Discretion set-aside. Of the State's total annual Tax Credit authority, 10% is set aside for rural Projects, 20% is set aside for Projects owned/operated and controlled by non-profit corporations, $850,000 is reserved for the Director's Discretion set-aside. In addition, Tax Credits will first be awarded to the highest scoring Projects identified in each of the "set-aside" categories set forth in Section 2.7. ADOH will establish a waiting list from eligible applications not receiving Reservations. This waiting list will remain in existence until December 31 of the Application Year. ADOH, however, reserves the right to hold Tax Credits during the application period, and to accept applications after the Deadline Date for consideration after all applications in this round have been reviewed. Those Projects meeting the eligibility requirements (see Section 2.6.), but not ranking high enough to receive Tax Credits during the current application round, may be eligible to receive any Tax Credits returned during the Year. Depending upon availability, ADOH will allocate Tax Credits that have been returned and those it has received during the Year from the National Pool to the next highest scoring Year 2005 Project(s) on the waiting list meeting the eligibility requirements. ADOH will award Tax Credits per the ranking until December 31 of the Application Year. ADOH will carry forward remaining Tax Credits to the next calendar year as permitted under IRC Section 42. Any Applicant not receiving Tax Credits from the current Year Allocation must resubmit its application in order to be considered for subsequent Year's Tax Credits. ADOH reserves the right not to reserve or allocate Tax Credits for any Project(s) in 2005, regardless of ranking under the Project scoring criteria, if it determines, in its sole discretion, that an Allocation for such Project does not further the purpose and goals set forth in IRC Section 42 or in the QAP, or otherwise attempts to circumvent the goals and requirements of the QAP or ADOH. 2.12. Carryover Allocation Projects under which the Applicant intends to place buildings in service after December 31, 2005, may receive a Carryover Allocation. Federal law allows a Carryover Allocation of Tax Credits for Projects that have expended, within six (6) months of the Allocation of credits, more than 10% (including land costs) of the reasonably expected basis in the Project by the close of the second calendar year. The following information is required for a Carryover Allocation and must be submitted to ADOH in 81/2 x 11 format, a three ring binder of adequate size, on or before the close of business December 1, 2005:
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(1) An updated application (ADOH Form C); (2) Per building Eligible Basis information required on Draft Table A (ADOH supplied form). (3) A 10% Test strategic plan, which includes the following items: A CPA or Legal Opinion which attests to the basis in the land, eligible basis, and amount of Tax Credits reserved for the Project and the amount of cost to be incurred to satisfy the 10% Test, as referenced in Section 2.12 of this QAP (the form of this opinion may be similar to Exhibit E-1 "Sample CPA Opinion"); and (b) "Project Cost Form" (Exhibit F-1) which shall indicate what line items will be expensed or accrued to meet the 10%Test. (4) Evidence, from the appropriate State agencies or commissions, that the entity that will own the Project is an existing legal entity authorized to transact business in the State and the ownership entity's taxpayer identification number. If the Applicant does not have a fully formed qualified legal entity that will own the property to which ADOH can assign the Allocation of Tax Credits, Satisfactory Progress (as described in Sections 2.6 (B)(3) and 4.2.) has not been met and ADOH may reject the application. (5) Provide, in accordance with IRC Section 42(m)(2)(B)(i) and Section 2.6. (B)(15) herein, all updated, draft and firm financing documents in existence including, but not limited to, the equity syndication prospectus (offering memorandum or equity letter), limited partnership agreement, operating agreement or joint venture agreement, partnership administration services agreement, development agreement, any amendments to the aforementioned documents, and any relevant agreement between and among the relevant parties setting forth the terms of the financial arrangements, final Commitment Letters and mortgage documents. (6) A written certification from an independent engineer that he or she has evaluated the utility capacity of the Project and that the utilities will meet the Project's needs. (7) A Phase I Environmental Review Report for all Projects. (8) Payment of all applicable fees to ADOH. (9) Any additional information requested by ADOH. (10) Copy of the Plans and Specs for the Project (submitted to the Local Government for approval). 2.13. 10% Test and Other Required Documentation IRC Section 42(h)(1)(E)(ii) requires Applicants with an executed Carryover Allocation to meet a 10% Cost Test the later of (a) the date which is 6 months after the date the Allocation is made, or (b) the close of the calendar year in which the Allocation is made. ADOH has chosen the close of the calendar year in which the Allocation is made to meet the 10% Test because Allocations are made in June. To determine if a Project with a Carryover Allocation is or has progressed in a satisfactory manner, the IRS requires a test of whether the amount of qualified costs which have been accrued or expensed within the six months described above is greater than 10% of the reasonably expected basis (eligible basis plus land). This 10% Test shall be certified by an Independent Auditor's Report in 8-1/2 x 11 format, placed in an adequately sized three ring binder and shall include the following:
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(a)
(1) A certification in the form of Exhibit F and Exhibit F1 completed by an independent thirdparty certified public accountant or qualified tax attorney, on firm letterhead, that 10% or more of the reasonably expected basis in the Project has been incurred by the above-prescribed dates. If the Developer fee is included in the 10% Test basis it must be reasonable (should not be greater than 20% of the total Developer fee and should not include fees that will be deferred). A certification that is equal to or less than 10% may result in ADOH revoking the Carryover Allocation due to unsatisfactory progress. (2) Evidence of ownership or basis in the land and improvements (if applicable), supported by a title report and closing statement from the title company. On governmental or Tribal lands, the Applicant must provide evidence of a fully executed, irrevocable lease between the Developer/Owner and the Tribal or other government for a specific rental amount and a term equal to or longer than the Extended Use Period and, for Tribal lands, evidence that all necessary approvals have been secured from the Tribe, the Bureau of Indian Affairs (BIA), and other governmental agencies. (3) Complete copies of all applicable construction contracts for the Project. (4) Applications for Projects not previously Placed in Service must provide evidence that the Project is now appropriately zoned for the proposed use and that the Local Government permits the construction of the proposed Project. (5) Evidence of appropriate building permits or any other applicable permits allowing for the construction of the Project, issued by the Local Government within 275 calendar days of the executed Carryover Allocation Agreement. 2.14. Forward Commitments ADOH may consider forward commitments for Projects. Projects that will be considered for a forward commitment are the first Project on the waiting list which is short $100,000 or less in Tax Credits based on the requested amount in the application if such amount of Tax Credits is necessary for funding of the Project. Applicants that exceed the $100,000 are not eligible for a Forward Commitment. Forward commitments will be granted by ADOH in its sole discretion 2.15. Questions ADOH will accept written questions concerning its scoring of items in an Applicant's application. Questions must be based solely on facts provided in the Applicant's original application. Copies of ADOH's scoring sheets are available at ADOH and may be copied for the standard fee. 2.16. Non-Allocated Projects Those applications that fail to receive an Allocation by December 31 of the Application Year are denied. Applicants who's Projects are denied must reapply and compete in subsequent years to be considered for Tax Credits. All fees paid to ADOH are non-refundable. 3. TAX CREDITS FOR DEVELOPMENTS FINANCED WITH STATE VOLUME CAP BOND AUTHORITY
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3.1. Determination of Tax Credits for Tax-Exempt Bond Projects IRC Section 42(h)(4) allows low-income housing Projects financed with tax-exempt bonds to be eligible for 4% Tax Credits if they meet the minimum requirements of the QAP. Applications for Projects financed with tax-exempt bonds may be submitted to ADOH as soon as Applicants receive confirmation of volume cap Allocation from the Finance Division of the Arizona Department of Commerce (phone: 602-771-1112, fax: 602-771-1208). At the time of final Allocation, Applicants sponsoring tax-exempt bond financed Tax Credit Projects will be required to pass all eligibility requirements (see Chapter 2.6), adhere to all General Regulations set forth in this QAP, and comply with all applicable requirements under Section 5, "Final Tax Credit Allocation." Applicants should consult with their legal advisors to determine a Project's eligibility. Applications for eligible tax-exempt bond Projects may be submitted, will be reviewed, and ADOH may allocate such Tax Credits outside the normal application round. The review of an application for a Determination of Qualification under IRC Section 42(m)(1)(D) will coincide with the Tax-Exempt Bond Hearing that is required under A.R.S. Section 35-726(E). Tax-exempt bond financed Projects may receive Tax Credits on the full amount of their eligible basis only if at least 50% of the Project's "aggregate basis" of any building and land upon which the building is located is financed with tax-exempt bonds. Tax-exempt bond Projects with funding gaps, requesting State Housing Funds to fill those funding gaps, must submit an application at the same time that the Applicant submits its Tax Credit application. The procedures followed by ADOH in processing applications for bond-financed Projects are set forth below. (A) Upon application: 1. ADOH will review Tax Credit applications at any time of the year after the Applicant has received a final resolution from the bond issuing authority. An Applicant must submit a complete Tax Credit application, at least 30 calendar days prior to the Section 35-726 (E) hearing. The Applicant must use the current year Tax Credit application forms. The application must be accompanied by the appropriate application fee. 2. To fully utilize 4% Tax Credits for tax-exempt bond Projects, the Applicant must include a letter from a certified public accountant or tax attorney at Tab A that attests that 50% or more of the Project's aggregate basis of any building and land upon which the building is to be located is "financed" by the tax-exempt obligation. 3. ADOH will determine whether the Applicant and the Project comply with all eligibility requirements of the QAP. 4. The Applicant must submit a certification that principal payments on the bonds will be applied within a reasonable period of time to redeem bonds that funded the financing for the Project. 5. ADOH will perform the first of two feasibility analyses to determine the amount of credits necessary for the viability of the Project. Before ADOH will make a Determination of Qualification of Tax Credits, ADOH will complete underwriting and comparison of the application submitted for the Section 35-726(E) hearing. ADOH feasibility analysis will include an underwriting of the Project in accordance with ADOH's current standards as set forth in this QAP. 6. The Applicant must pay all required fees to ADOH when due.
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(B) After Volume Cap Allocation for the bonds: 1. ADOH will issue a Determination of Qualification letter after both the Section 35-726 (E) hearing and after ADOH issues an approval letter. 2. The Applicant will submit to ADOH a written election statement, referencing IRC Section 42(b)(2)(A)(ii)(II). This election statement will certify that the Applicant has chosen to lock in the applicable percentage as of the Placed in Service date or as of the month that the tax-exempt bonds are issued. If the latter is elected: (a) The certification must specify the percentage of the aggregate basis of the building and the land on which the building is located that is financed with bond proceeds; (b) The certification must state the month in which the bonds are issued; (c) The certification must state that the month in which the bonds are issued is the month elected for the applicable percentage to be used in the building; (d) The certification must be signed by the Applicant; (e) The Applicant must provide the original notarized election statement to ADOH before the close of the 5th calendar day following the end of the month in which the bonds are issued. If this certification is not received by that date, then ADOH must use the percentage based on the Placed in Service date; and (f) The Applicant must provide ADOH with a signed statement from the governmental Unit that issued the bonds that certifies: (1) the percentage of the aggregate basis of the building and the land on which the building is located that is financed with bond proceeds and (2) the month in which the bonds were issued. 3. At the Placed in Service date, the Applicant will submit to ADOH: (a) a completed cost certification, and (b) an opinion of the Applicant's certified public accountant that 50% or more of the aggregate basis for any building included within the Project and the land on which the building is located are financed with tax-exempt bonds, and (c) an opinion of the Applicant's counsel that the Project is eligible to receive Tax Credits under IRC Section 42(h)(4). At this point ADOH will perform the final feasibility analysis of the Project. 4. The Applicant will submit to ADOH the recorded Extended Land Use Agreement and Consent and Subordination Agreement for the Project along with certifications that: (a) The bonds issued to finance all or a portion of the Project have received an Allocation of the State's private activity bond volume cap pursuant to 26 U.S.C. 146; (b) That principal payments on the bonds will be applied within a reasonable period of time to redeem bonds the proceeds of which were used to provide financing for the Project; and (c) That the governmental Unit which issued the bonds made a determination under rules similar to those set forth in IRC Section 42 (m)(2)(A) and (B) that the housing credit dollar amount for the Project does not exceed the amount necessary for the financial feasibility of the Project and its viability as a qualified low-income housing Project throughout the credit period.
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5. If the requirements of IRC Section 42 and this QAP are satisfied, ADOH will issue IRC Form 8609 for the Project at the applicable credit percentage under IRC Section 42(B)(2) and will file the original of the election statement with the original of the Form 8609 with the appropriate IRS Form 8610. 4. GENERAL REQUIREMENTS
4.1. False Filing An application, including all exhibits, appendices and attachments thereto, made to ADOH for an award of low-income housing Tax Credits, including any materials filed at a later time with ADOH in connection with an application, is considered to be an "instrument" for the purposes of A.R.S. Section 39161. According to that statute, knowingly including any false information in or with the application is a class 6 felony. Such an act may also result in barring the Applicant and Development Team Members from future awards of low-income housing Tax Credits. In addition, false filing may be subject to the provisions of A.R.S. Section 13-2311, "Fraudulent schemes and practices; willful concealment...." 4.2. Satisfactory Progress Applicants who have previously received a Determination of Qualification, Reservation or Allocation in Arizona or any other state must make Satisfactory Progress and be in substantial compliance with the requirements of federal law with respect to all prior Projects before ADOH will consider a new application. "Satisfactory Progress" means that the Applicant including any Person with an ownership interest in the Applicant or Development Team Member, has presented sufficient evidence, as determined by ADOH that the Applicant has met the benchmarks for various phases of the development of each Project e.g. financing, construction or rehabilitation, as established in the Project schedule (Form X) submitted in the Tax Credit application, or as may otherwise be reasonable or as amended and approved by ADOH. If the Applicant fails to demonstrate Satisfactory Progress, ADOH may recapture the Reservation or Allocation of Tax Credits and reject any new application from the same Applicant, Development Team, any Person with an ownership interest in the Applicant, or a member or members of the Applicant or Development Team. Applicants that have received previous Allocations must demonstrate Satisfactory Progress towards any Project Placed in Service (See Section 9, Definitions). Applicants that have not closed on construction loans or utilized bond proceeds for construction within 240 days of Allocation are not eligible for future awards without a written waiver request explaining the circumstances causing and justifying the delay. Waivers for any delay shall be granted or denied by ADOH in its sole discretion. All Applicants that have received a Determination of Qualification or Reservation, Carryover Allocation or Allocation will be required to report on Project progress, using Form X, the "Project Schedule," accompanied by a brief narrative, every 60 calendar days after receipt of the Determination, Reservation, Carryover Allocation or Allocation. Applicants with Projects that include Tax Credits that have not received a final Allocation must make a written request for an approval of the deviation from the approved Project schedule submitted with the application. Projects that are not proceeding according to the original Project schedule submitted, and approved amendments, may be subject to revocation due to lack of Satisfactory Progress. ADOH may monitor both the progress and quality of construction. If progress or quality has not been satisfactory, ADOH may report significant deficiencies to any funding source, to other members of the Project team, and to the Applicant.
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4.3. Change of Ownership ADOH's prior written approval is required for any kind of change of ownership of the Applicant. Once a Determination, Reservation, Carryover Allocation or Allocation has been issued for a Project, transfer of ownership of that Project (sale of ownership of any kind) will constitute an automatic event of revocation by ADOH. ADOH may revoke or reverse a Determination, Reservation, Carryover Allocation or Allocation or reduce the amount of Tax Credits at any time. 4.4. Special Needs Populations For Projects serving Special Needs Populations, the Project Owner will provide Supportive Services to the residents. It is the Owner's responsibility to plan and coordinate these Supportive Services so that they are provided by on-site providers or by existing off-site social service agencies. This requirement will be included in the Applicant's Extended Use Agreement. The Applicant must appropriately detail and break down the costs in its Supportive Services operating budget. In all cases, tenants applying for Special Needs Population Low-Income Units must present to the property manager a letter of referral or equivalent documentation from a licensed M.D. or recognized social service agency, certifying the tenant as a member of the Special Needs Population and noting any special accommodations required. 4.5. Senior Projects The Project Owner will provide to the residents a service package that promotes the resident's quality of life and independence while providing efficient delivery of Supportive Services to the residents. 4.6. Revocation of a Certificate of Qualification for 4% Tax Credits, Tentative Award Letter, Certificate of Reservation or Carryover Allocation for 9% Tax Credits. ADOH may deny or revoke a Determination of Qualification for 4% Tax Credits, Tentative Award Letter, Reservation or Carryover Allocation for 9% Tax Credits for any Project. Denial or revocation may occur at ADOH's sole discretion, due to actions taken by the Applicant, Affiliate or Project Owner from time of the Certificate of Reservation up to the Placed in Service date, for any of the following reasons: (1) (2) (3) (4) (5) Subsequent regulations issued by the Department of Treasury or the Internal Revenue Service. Information submitted to ADOH is determined to be fraudulent. Failure to pay fees. Failure to meet eligibility requirements, as outlined above, or other requirements of this QAP. Site evaluation and suitability based on the market impact on other affordable housing developments within the primary market area, the proximity to railroad tracks, freeways, excessive noise levels and general site suitability and other conditions regarding clean title, easements, floodplains or wetland issues. Failure to make Satisfactory Progress as defined in Section 4.2. of this QAP towards Placed in Service date. Instances of curable or incurable noncompliance existing at any time during the compliance period for any federal or state subsidized Project located in any state. Applicant or Owner fails to promptly notify ADOH of any material or adverse changes from the original application. Material Changes without written approval of ADOH. Change in Unit design, square footage, Unit mix, number of Units, number of buildings
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(6) (7) (8) (9) (10)
without the written approval of ADOH. (11) Debarment by HUD or other Federal and State programs, bankruptcy, criminal indictments and convictions. (12) Failure to comply with federal or state Fair Housing Laws. (13) Other cause demonstrating the failure of the Applicant or the Project to be qualified or meet the requirements of federal or state law or the requirements of the applicable tax credit program. 4.7. Disqualification ADOH will reject an application if ADOH the Applicant, including any Person with a Controlling Interest in the Applicant or other members of the Development Team have: (a) failed to make Satisfactory Progress in the construction or rehabilitation of any Project ; (b) not corrected compliance problems in other tax credit Projects in a timely manner; (c) not paid, when due, ADOH's compliance monitoring fees or any other fees required by ADOH; (d) filed with ADOH any materials containing false information, documents, or instruments, whether in the Application Year or prior program years; (e) failed to build a previously-approved Project in conformity with the terms, provisions, and agreements contained in the application submitted to ADOH, in the applicable year's Allocation Plan, and in the Extended Use Agreement for the Project, including but not limited to, the terms, provisions and agreements to conform to the minimum design standards, install equipment, amenities, or design features to serve a specific target population, to provide a specific mix of Unit sizes, to serve Special Needs Populations, or to set aside a certain number of Units for persons at or below a specific percent AMGI; (f) developed or partially developed prior Projects that are poorly constructed, evidence substandard workmanship, or do not comply with ADOH's Minimum Design Standards; or, (g) been convicted, are currently under indictment or complaint, been found liable or is currently accused of fraud in this state or any other state, or misrepresentation relating to: (1) the issuance of securities, (2) the development, construction, operation, or management of any Tax Credit or other government subsidized housing program, (3) the conduct of the business of the applicable party, in any criminal, civil, administrative or other proceeding, or (4) any filing with the Internal Revenue Service in any state. 4.8. Extended Use Period Pursuant to IRC Section 42, the State requires that all recipients of Tax Credits enter into an initial 15year compliance requirement and an additional extended use restriction for at least an additional 15 years after the initial compliance requirement, extending the total commitment to a minimum of 30 years. Prior to the issuance of Form 8609(s), the Owner of the Project will be required to execute and record with the county recorder where the Project is located, such an Extended Use Agreement, which shall constitute a restrictive covenant running with the property upon which the Project is located. The agreement shall be in the form provided by the State and is available from ADOH upon request. See Section 5.4. 4.9. Acquisition of Land and Buildings Applicants are required to acquire land and buildings from unrelated third parties in arms length transactions. Requests for a waiver of this requirement must be submitted with the application and include a full justification, including an appraisal less than six months old prepared by an Arizona Certified General Real Estate Appraiser. 4.10. Material Changes Notwithstanding the foregoing, ADOH strongly desires that each Applicant strictly adhere to the terms of
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its application, which was the basis upon which any Reservation or Allocation was made. All Material Changes must be approved by ADOH . In order to obtain ADOH approval of a Material Change, the Applicant must submit a written request to ADOH explaining the change and the reasons justifying the change. A $1,000 Administration Fee must accompany the written request. ADOH will not consider the request unless the fee is included. Because of ADOH's statutory mandate to award Tax Credits only to the extent they are necessary for Project feasibility, the Applicant must communicate in writing any proposed Material Change in the Project immediately to ADOH for an assessment of the impact on final underwriting and Allocation . The written request must include the Applicant's reasons under IRC Section 42 or in this Allocation Plan for believing that the change is permissible. Projects applying for a Material Change will be underwritten to the standards in the Allocation Plan of the year that Tax Credits were awarded. The Applicant must submit to ADOH written approvals of the Material Change from the Local Government, the lender, and the syndicator as discussed below. A. Change of Location and Use. ADOH will not allow an Applicant to change the location of a Project once the application has been submitted. Notwithstanding the foregoing, ADOH, may allow a Project relocation prior to the Carryover Allocation of Tax Credits if the new site for the Project is within the census tract specified in the application, ADOH receives the written approval of the Unit of Local Government, and the need for relocation was unforeseeable and beyond the Developer's control at the time of application. If an Applicant changes the location of a Project without the written approval of ADOH, ADOH will revoke the Tax Credits Determined or Reserved for the Project. Changes in the use of a Project (e.g., elderly, family, transitional) after the application has been submitted will not be allowed except with the written approval of both the Unit of Local Government and ADOH. See also below "Complex Material Changes" if the change in location involves an increase in Project costs. B. Changes to Principals. Substitution of a general or limited partner, or in syndicator or permanent lender may constitute a Material Change, and therefore, must be reviewed by ADOH. If ADOH determines there is no negative effect on the Project's feasibility, the change will not be considered material and no fee is due. C. Complex Material Changes. Complex Material Changes, (e.g. restructurings that involve a change in the number of Units in the amount of borrowed funds, or in the sources of funds), will be reviewed following the guidelines below: (1) Unforeseeable circumstances or the imposition of extraordinary governmental rules and regulations, if fully documented and justified, will be viewed as reasons to approve Material Changes. (2) When a Project is underwritten as the result of a Material Change, any decrease in the scoring or ranking of the Project will not be allowed. (3) Requests for Material Changes necessary to prevent substantial hardship to the Project or its feasibility will be considered for approval by ADOH on a case-by-case basis. (4) If, without approval of a waiver at the time of application, cost caps are later exceeded and create a need for additional funding, ADOH resources will not be a source of the additional funding. In addition, ADOH may consider the presence of newly found sources of governmental or non-governmental funds in a Project as evidence that ADOH State Housing Funds are not needed in the Project. If that occurs, ADOH may reduce or eliminate its
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contribution to the Project. (5) When the Material Change involves a restructuring, all commitments (e.g., set-asides, amenities) must be proportionately the same as at time of application. D. Failure to get ADOH approval. If the Applicant fails to obtain ADOH's approval to Material Changes, ADOH may recapture or reduce all or part of the Tax Credits Determined or Reserved for the Project. 4.11. Distribution of Units Projects shall allocate the low and moderate income Units among the different sized Units to reflect the same percentage distribution as the number of different size Units to the total number of Units. A greater percentage of the low and moderate income Units may, however, be allocated to the larger Units. Additionally, low and moderate income Units shall be distributed throughout the Project so that tenants of those Units will have equal access to and enjoyment of all common facilities of the Project. 4.12. Amendments to the QAP ADOH may modify this QAP, including its compliance and monitoring provisions, from time to time, or for any other reasons as determined by ADOH: (i) to reflect any changes, additions, deletions, interpretations, or other matters necessary to comply with IRC Section 42 or regulations promulgated there-under; (ii) to insert such provisions clarifying matters or questions arising under this QAP as are necessary or desirable and that are contrary or are inconsistent with this QAP or IRC Section 42; or (iii) to cure any ambiguity, supply any omission or correct any defect or inconsistent provision with this QAP or IRC Section 42. 4.13. Disclaimers ADOH makes no representations to the Applicant, Developer, Owner, or syndicator or to any other Person as to Project eligibility or compliance with the Code, Treasury Regulations, or any other laws or regulations governing the Low-Income Housing Tax Credit program. No member, officer, agent or employee of ADOH shall be liable for any claim arising out of, or in relation to, any Project or the Tax Credit program. Applicants will be required to execute a release and indemnification of ADOH and related parties prior to issuance of the Form 8609. 4.14. Return of Tax Credits At any time, ADOH may determine that Tax Credits reserved in a Reservation or awarded in a Carryover Allocation or a Letter of Qualification (for Tax-Exempt Financed Developments) be returned to ADOH upon notice to the Applicant. 5. FINAL TAX CREDIT ALLOCATION
5.1. Final Tax Credit Allocation and First Year Certification by ADOH By law, an Applicant must receive a Determination of Qualification or a Certificate of Reservation and a Carryover Allocation of Tax Credits from ADOH by December 31 of the Application Year. ADOH will make a final determination of the amount of Tax Credits at the time the Project is Placed in Service. ADOH will evaluate the Project's final costs and the amount of revenues from the sale of the Tax Credits.
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ADOH's final evaluation may include a review of invoices, canceled checks and contracts. Accordingly, ADOH encourages Developers to keep detailed records of construction costs. ADOH, in its sole discretion, may reduce credits based on its final evaluation and require a return of Tax Credits to ADOH. The Applicant must submit an 8609 package within 120 calendar days of the last building being Placed in Service. Along with the 8609 package, the Applicant must also submit a complete copy of an appraisal of the Project and the property prepared by an Arizona Certified General Real Estate appraiser indicating the value of land and buildings separately. At the time of a final Allocation, ADOH and the Applicant will execute and record an Extended Use Agreement. Evidence of that recording must be presented to ADOH before the issuance of IRS Form 8609(s). Applicants will receive a final Allocation of Tax Credits as described below. 5.2. First Year Certification and Issuance of Final Allocation (IRS Form 8609) For buildings that are Placed in Service as part of a qualified Project (by December 31st following the 24 months of closing of the bonds or from issuance of a Carryover Allocation), and upon compliance with all requirements of the Code and ADOH, ADOH will issue an IRS Form 8609 for each building as of the time the building is Placed in Service. The Applicant must fully pay all fees and file the following items in 8.5x11 format, adequately bound, in a three ring binder and tabbed to correspond to the following order prior to 8609 issuance: (1) An updated application (ADOH Form C). (2) A 15 year pro forma, in the form stated in Section 2.6.B(23) of this Allocation Plan, starting with the Placed in Service date. (3) A permanent lender's final appraisal of the Project. (4) All Certificates of Occupancy, issued by the appropriate governmental authorities, for qualifying buildings that must indicate the dates the buildings were Placed in Service and the addresses of those buildings. (5) An Owner's Certification of actual costs (ADOH supplied form). (6) An Independent auditor's report certifying the final cost (ADOH supplied sample). (7) The Applicant's building by building Tax Credit computation (on ADOH form Table A). (8) A letter from the permanent lender summarizing the terms and conditions of the permanent loan. Upon closing of the permanent loan, the Applicant must submit copies of the promissory note and deed of trust to ADOH. (9) A Promissory Note from the Project's ownership entity payable to the Developer in an amount sufficient to cover any Deferred Developer Fee . Other forms of obligation to pay may be substituted if allowed under the definition of Deferred Developer Fee and if they include the following: (1) the interest rate; (2) the term of repayment; (3) the source of repayment and proof that the source of repayment is supported by cash flow Projections or a binding commitment from a party capable of repayment; and (4) if there is a lien, language stating that the lien is subordinate to other liens relating to permanent financing. (10) An Extended Use Agreement and Consent and Subordination Agreement signed by the
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Applicant (form provided by ADOH). All agreements to be signed and recorded by December 31st must be submitted to ADOH not later than December 1st of that same year. (11) One 8 x 10 color photograph of at least one of the Project's buildings with signage. (12) A Statement detailing the Project's first Credit Year. (13) Final partnership, operating, or joint venture agreements. (14) An investor certification letter (ADOH provided form). (15) Written certification from the architect that the Project meets the minimum requirements of the Uniform Building Code, Uniform Mechanical Code, Uniform Plumbing Code (1994 Editions), National Electrical Code (1993 Edition), Uniform Federal Accessibility Standards, 2000 International Energy Conservation Code (IECC), the International Building Code and the HUD Fair Housing Regulations (24 C.F.R., Part 100, Subpart D). (See Form W.) (16) Certification from the Owner that the Project complies with the minimum design features required. (See Form W.) (17) Certification from the Arizona Energy Office that the Project complies with the 2000 International Energy Conservation Code (IECC) (contact the Energy Office at the Arizona Department of Commerce: (602) 771-1149). (18) Proof of flood insurance, as applicable. (19) Any additional information requested by ADOH. 5.3. Final Allocation Underwriting Prior to the issuance of IRS Form 8609(s), ADOH will underwrite the Project a final time using actual sources and uses of funds. Applicants must submit to ADOH a final cost certification, executed loan documents for all funding sources, and a copy of the final executed agreement with the equity investor. ADOH will perform an Equity Gap Analysis a third and final time. Unreasonable costs, changes in financing sources, funding amounts, or excess equity may reduce the final amount of Tax Credits. The requirements for the final cost certification are set forth in IRS Regulation 1.42-17. It states that the Applicant must certify to ADOH the full extent of all federal, state, and local subsidies that apply (or that the Applicant expects to apply) to the Project. The Applicant must also certify to ADOH all other sources of funds and all development costs for the Project. The Applicant must prepare the required schedule of development costs based on the method of accounting used by the Applicant for federal income tax purposes, and it must detail the Project's total costs as well as those costs that may qualify for inclusion in eligible basis under IRC Section 42. The Applicant must make the required certifications on the Certificate of Actual Costs Form (ADOH supplied form). IRS Regulation 1.42-17 also requires that Projects with greater than 10 Units submit a Certified Public Accountant's audit report on the schedule of Project costs. The CPA's audit must be conducted in accordance with generally accepted auditing standards, be unqualified, and be presented substantially in the form of Exhibit G to this QAP. 5.4. Extended Use Agreement (A) IRC Section 42(h)(6) requires that the Project be subject to an "extended low-income housing
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commitment." ADOH complies with these requirements by the execution and recording of an Extended Use Agreement at the time of the final Allocation. The Extended Use Agreement sets forth covenants running with the land for a minimum of 30 years. The Extended Use Agreement will also indicate the Units set-aside for lower income tenants, the percentage of median income tenants served, the special needs characteristics of tenants, tenant ownership, amenities, Supportive Services and other commitments or requirements, if any, that may apply based on the QAP or application. ADOH provides a standard form Extended Use Agreement. (B) Applicants who have received a Determination of Qualification or Reservation and Carryover Allocation of Tax Credits and desire to have the Extended Use Agreement completed and recorded by the end of the year must request it by November 1, 2005. Any requests submitted after the November 1st deadline may not be completed by the end of the year. 6. FEES
6.1. Application Fee A non-refundable fee of $3,500 is due ADOH at the time of submission of the application. Applications will be rejected unless accompanied by this fee. For Applicants requesting joint LIHTC/State Housing Fund funding, please consult the current Notice of Funding Availability of the State Housing Fund for applicable fees. NOTE: Please note that in accordance with the recent Rev. Ruling. 2004-82, application fees for applying for LIHTC are no longer allowed in basis. 6.2. Director's Discretion Application Fee Applicants for hardship requests must submit an additional application fee of $2,500 to ADOH. Hardship requests must be documented to the satisfaction of ADOH and must demonstrate the existence of an unforeseen emergency situation where the completion of the Project is jeopardized without an award of additional Tax Credits. 6.3. Building Permit Extension Fee Within 240 calendar days of the executed Carryover Allocation Agreement, the Developer must submit ADOH evidence of appropriate building permits allowing for construction of the Project, issued by the appropriate governing municipality. If the Developer requires additional time, ADOH will grant a 30-day extension upon payment of a $3,500 extension fee together with a written request for the extension, which must explain the reasons for the extension request. After three extensions, however, ADOH may revoke an Allocation, if it determines that the Applicant has not achieved Satisfactory Progress in accordance with Section 2.6.B(3) and Section 4.2.. 6.4. Determination or Reservation Fee and Final Allocation Fees (A) ADOH will assess a Final Allocation Fee and either a non-refundable Determination of Qualification Fee (4% Tax Credits) or Reservation fee (9% Tax Credits) to process an application to the point of Tax Credit Determination or a non-refundable Reservation. ADOH will calculate the total Determination of Qualification Fee or the Reservation Fee as a percentage of Tax Credits requested by the Applicant and the Final Allocation Fee as a percent of the amount of Tax Credits allocated. The percentages applicable to the Determination of Qualification Fee and the Reservation Fee are:
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(1) For-profit Applicants: 10.0% (2) Non-profit sponsored Applicants: (B) The total fee is payable as follows:
8.0%
(1) The Determination of Qualification or Reservation Fee is payable after determination that an application represents a feasible and viable Tax Credit Project with a likelihood of completion. The Applicant must pay the Determination of Qualification or Reservation Fee to ADOH prior to issuance of a Determination of Qualification (4% Tax Credits) or Reservation (9% Tax Credits). (2) Four percent Allocations that qualify for more Tax Credits at final Allocation will be required to pay an additional Reservation Fee on the additional credits at the final Allocation submission according to the following percentages of the additional credits: (i) For-profit Applicants: 8.0% (ii) Non-profit sponsored Applicants: 6.0% (3) The Final Allocation Fee of 2% is payable upon the issuance of an Allocation of credit as evidenced by the IRS Form 8609. The Applicant must submit the Final Allocation Fee together with the final Allocation information submitted in accordance with Section 5 of this QAP and prior to issuance of the IRS Form 8609(s). The Final Allocation Fee will be 2% of the final Tax Credits allocated. 6.5. Applicant's Obligation for Fee Payment ADOH will assess the non-refundable Determination or Reservation Fee and Final Allocation Fee for the purpose of covering the costs and expenses of processing an application to the point where the Applicant may receive a final Allocation. If a Determination or Reservation or Carryover Allocation is not assignable due to action or inaction by the Applicant, the fees are nonetheless due and payable to ADOH upon demand. If ADOH does not award the entire Allocation amount, upon issuance of Form 8609, ADOH will not refund any of the Determination or Reservation Fee and Final Allocation Fee. 6.6. Tenant Ownership Fees Applicants with applications that include Tenant Ownership will be required to pay an additional $4,000 legal review fee at the same time that they pay the Determination or Reservation Fee. 6.7. Carryover Allocation Late Fees ADOH will charge a Carryover Allocation Late Fee of $250 per day for any information received after the December 1st deadline of the Application Year. Carryover information not received by the close of business December 15 of the Application Year, will result in the Project not receiving a Carryover Allocation. In extreme circumstances, such as a late Reservation of Tax Credits, ADOH may waive the Carryover Allocation Late Fees. 6.8. Ten Percent Test Late Fees If the Developer requires additional time to submit the information required under Section 2.13, ADOH may grant extensions of 30 calendar days upon payment of the $3,500 extension fee. After three extensions ADOH may refuse to grant any further extensions and may reject the application if the Applicant has not achieved Satisfactory Progress in accordance with Sections 2.6. (B)(3) and 4.2. ADOH
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will charge a $500 per day fee for documentation regarding items (1) through (4) above submitted after the announced Deadline Dates. No documentation will be accepted after close of business on the announced dates. ADOH will recapture all Tax Credits and notify the Applicant if documentation is submitted later than the deadline. 6.9. Administration Fees Applicants must submit a fee of $1,000 to ADOH before any interim underwriting requested by the Applicant or additional underwriting required by ADOH due to a Material Change is performed. If the Applicant fails to pay the Administration Fee, ADOH will recapture all Tax Credits allocated to the Project. 6.10. Compliance Monitoring Fees Every Applicant for a Project that receives an Allocation must pay to ADOH a non-refundable monitoring fee to cover compliance monitoring of the Project by or on behalf of ADOH. The monitoring fee will be $50 per Low-Income Unit plus an annual report fee as listed below. ADOH will assess the monitoring fee annually and the monitoring fee will be due on or before March 15th of each year along with the submission of the annual report. Number of Units 0 to 50 Units 51 to 99 Units 100 + Units Annual Report Fee $300 $550 $1,050
ADOH will assess a $100 late fee for every 30 days that the Applicant is delinquent in paying the monitoring fee after March 15th. 6.11. Fees Are Not Refundable All fees set forth in this Chapter 6 are nonrefundable. 7. UNDERWRITING
7.1. Underwriting Standards Congress charges ADOH with allocating Tax Credits at the minimum level needed to realize the financial feasibility of a Project and its viability as a qualified low-income Project throughout the Extended Use Period. ADOH must make this determination three times: (1) at application; (2) at Carryover Allocation; and (3) at the Placed in Service date. ADOH, in its sole discretion, may request an update to any information contained in the application and thereafter underwrite a Project at any time based on such updated information, and will do so at the time of construction loan closing for Projects partially funded by the State Housing Fund. ADOH will perform an evaluation of the Project costs to determine reasonableness as compared to other Projects in similar areas. Generally, costs in excess of 110% of the Department of HUD's most recent 221(d)(3) base mortgage limit for a three bedroom elevator building currently $89,719 per Unit will not be permitted to be included in basis (although such costs are not prohibited). However, in unusual and well-documented cases, costs in excess of this limit may be included in eligible basis based on ADOH's underwriting analysis. Unusual cases may include, but are not limited to, small size Projects, Projects
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located in Qualified Census Tracts or in a federally designated empowerment zones, federal enterprise community locations, HOPE VI Projects, Projects with deep rent targeting, Projects sponsored by local nonprofit organizations, Projects in Difficult Development Areas, or difficult substantial rehabilitation Projects. In conducting its evaluations, ADOH will apply the following reasonableness standards in regard to fees: A. Developer and Consultant Fees (excluding "Consultants" normally used in the development process, such as market analysts, environmental Consultants, construction manager/Consultant when not included in the construction contract, etc.) ADOH will limit the Developer fee, overhead, and Consultant fees in calculating the amount of Tax Credits to be allocated to a proposed Project. The following parameters will change, however, if the Project is subject to subsidy layering analysis and/or there is an Identity of Interest between the Developer and the Builder. Developer Fee, Overhead, and Consultant Fee Limits As A Percent Of Total Eligible Basis In Cost Categories I-V of the Development Budget Number of Units 1-15 16-30 31-45 46-60 61+ Percent Allowed 18% 17% 16% 15% 14%
For Category IX of the Development Budget, Developer's Fee, Overhead and Consultant Fee limits for Acquisition/Rehabilitation Projects are calculated using 14% on the eligible acquisition cost to be listed in the 4% column; the chart above will be utilized to calculate the developer's fee, overhead and Consultant fee on the eligible rehabilitation cost in the 9% column. B. Factors: (1) Project Need. ADOH will evaluate the Market Demand Study to ascertain that there is strong new market demand for the type of low-income housing proposed. The Market Demand Study must be in the form and format required by ADOH. (See Exhibit L to this QAP.) ADOH underwriters will review data submitted concerning the market area; the target population (e.g., e, large family, priority populations with special housing needs); occupancy levels and vacancy rates of comparable Projects; absorption rates for comparable Projects recently entering the market; and current waiting lists, including the waiting list of the local Public Housing Authority. ADOH underwriting review will assess the risk associated with adding the proposed Units to the housing stock, including the risk of economic disruption to properties already offering comparable housing in the market area. If the Market Demand Study submitted with the application is incomplete, ADOH may require the Applicant to supplement the study in whole or in part before the evaluation of market risk can be completed. The Applicant must pay for any supplements ordered by ADOH. (2) Affordability of Proposed Rents. ADOH underwriter will review the proposed LIHTC rents to determine whether they are: (i) 10% below market rents being charged for the same type Units in the Primary Market Area (PMA), (ii) will be affordable to the target population; and (iii) will generate sufficient income to cover operating expenses and debt service of the Project. The primary focuses of this review are affordability to the residents, the appropriate quality of the
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proposed housing, including design features and amenities committed to by the Developer/Owner, and the Project's long-term viability as affordable housing. This review will attempt to balance the initial cost of the Project against the affordability to low-income residents and against long-term viability. The review evaluates the risk of obtaining proper value for the taxpayer's investment and how that value is distributed between affordability and long-term viability. (3) Developer Experience and Ability to Deliver the Project as Designed in the Time Allotted. ADOH will assess the "Developer risk," - the possibility that the Development Team is insufficiently skilled, experienced, or financed to deliver as promised. ADOH underwriter will review resumes and financial statements of key members of the Development Team for indications of sufficient experience and borrowing capacity. ADOH will investigate any indications of Identity of Interest among members of the team to determine whether appropriate adjustments should be made to the compensation allowed the team. (4) Project Feasibility. ADOH will award Tax Credits to only those Projects that ADOH determines are feasible. ADOH underwriter will determine whether all costs are appropriate and reasonable, the site can be built as proposed, all utilities and necessary community amenities are available to the site, and once completed, the Project will be able to make available affordable housing to the targeted low-income residents throughout the proposed Extended Use Period. (5) Overall Project Cost Reasonableness. At each of the three times that underwriting is performed, ADOH shall review the cost reasonableness of all Project costs in order to calculate the amount of eligible basis for the Project. Failure to comply with cost reasonableness could be the basis for the denial, reduction, or return of a Reservation or Allocation of credits, at any of the three times underwriting is performed. (6) Reasonable and Customary Costs. All costs must be reasonable and customary with respect to Projects of comparable size and type, mix, location and amenities. ADOH will determine cost reasonableness from, among other sources, a database compilation of the experience of prior multifamily Projects in the State and consultation with construction cost experts. (7) Acquisition Cost Limits. For Project land for multi-story multifamily Projects consisting of more than the limits in the table below, the Applicant must submit a plot plan on which all undeveloped land has been clearly identified. Bedrooms 0-Bedroom 1-Bedroom 2-Bedroom 3-Bedroom 4-Bedroom Net Area Per Unit (Sq. Ft.) 1,700 2,200 3,500 4,200 4,800
Applicants for Projects awarded Reservations must substantiate land and building acquisition costs with an appraisal prepared by an Arizona Certified General Real Estate Appraiser as part of Carryover documentation, or, if the Project does not require Carryover, at final Allocation (see Section 5.3.). ADOH will not allow land and building acquisition costs in excess of appraised value. 7.2. Builder's Profit, Overhead and General Requirements Limits
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The Department will allow the following maximum percentages as Builder or general contractor charges. (Percentage will be applied to the aggregate of the "Total: Site and Demolition," the "Subtotal: Direct Construction," and the line item "Community Buildings," on the Development Budget, Form C of the application.) If an Identity of Interest exists between the Developer and the Builder, the Builder's Profit will be allowed at a lower percentage (see chart below.) Builder's Profit, Overhead* and General Requirements** Project size in Units Builder's Profit (with Identity of Interest), or Builder's Profit Builder's Overhead* General Requirements** Total Maximum Percentage * ** Percent of Costs 1-15 2 6 3 6 15 16-30 2 5.75 2.75 5.75 14.25 31-45 2 5.5 2.5 5.5 13.5 46-60 2 5.25 2.25 5.25 12.75 61+ 2 5 2 5 12
Builder's overhead includes a percentage for main office expenses for the job. General requirements include Project related site costs such as temporary fencing, utilities to site during construction, job site supervisor, job site office, etc.
7.3. Construction Financing Cost ADOH, in its sole discretion, may lower the cost included in this category based on the reasonableness of the construction lender's Letter of Interest or Intent. ADOH will analyze: (i) if the interest rate is comparable to the market; (ii) the origination and loan fees are equivalent to 2% of the construction loan amount; and (iii) the construction interest will be calculated as follows: Construction Loan Amount x Annual Interest Rate = Monthly Interest 12 Monthly Interest x Months of Construction plus Stabilization = Interest x 50% Ave

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Copyright to this resource is held by the creating agency and is provided here for educational purposes only. It may not be downloaded, reproduced or distributed in any format without written permission of the creating agency. Any attempt to circumvent the access controls placed on this file is a violation of United States and international copyright laws, and is subject to criminal prosecution.

STATE OF ARIZONA Low-Income Housing Tax Credit Program
2005 QUALIFIED ALLOCATION PLAN
Table of Contents 1. 1.1. 1.2. 2. 2.1. 2.2. 2.3. 2.4. 2.5. 2.6. 2.7. 2.8. 2.9. 2.10. 2.11. 2.12. 2.13. 2.14. 2.15. 2.16 3. 3.1. INTRODUCTION Background General and Specific Goals APPLICATIONS FOR TAX CREDITS Amount of State's Annual Credit Authority Available Statewide Maximum Tax Credit Reservation Timetable and Application Submission Location Application Format Application Review Process For Projects that are not Bond Financed Eligibility Requirements 2005 Set-Asides 2005 Project Scoring Rents Tiebreaker Project Ranking Carryover Allocation 10% Test and Other Required Documentation Forward Commitments Questions Non-Allocated Projects 1 2 3 3 4 4 4 5 15 17 21 21 22 22 23 24 24 24
TAX CREDITS FOR DEVELOPMENTS FINANCED WITH STATE VOLUME CAP BOND AUTHORITY Determination of Tax Credits for Tax-Exempt Bond Projects 25
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4. 4.1. 4.2. 4.3. 4.4. 4.5 4.6 4.7. 4.8 4.9 4.10. 4.11. 4.12. 4.13. 4.14. 5. 5.1. 5.2. 5.3. 5.4. 6. 6.1. 6.2. 6.3. 6.4. 6.5. 6.6. 6.7. 6.8. 6.9. 6.10. 6.11. 7. 7.1. 7.2. 7.3. 7.4. 7.5. 7.6. 7.7. 7.8.
GENERAL REGULATIONS False Filing Satisfactory Progress Change of Ownership Special Needs Populations Senior Projects Revocation of a Certificate of Qualification for 4% Tax Credits, Tentative Award Letter, Certificate of Reservation or Carryover Allocation for 9% Tax Credits Disqualification Extended Use Period Acquisition of Land and Buildings Material Changes Distribution of Units Amendments to the QAP Disclaimers Return of Tax Credits FINAL TAX CREDIT ALLOCATION Final Tax Credit Allocation and First Year Certification by ADOH First Year Certification and Issuance of Final Allocation (IRS Form 8609) Final Allocation Underwriting Extended Use Agreement FEES Application Fee Director's Discretion Application Fee Building Permit Extension Fee Determination or Reservation Fee and Final Allocation Fee Applicant's Obligation for Fee Payment Tenant Ownership Fees Carryover Allocation Late Fees 10% Test Late Fees Administration Fees Compliance Monitoring Fees Fees Are Not Refundable UNDERWRITING Underwriting Standards Builder's Profit, Overhead and General Requirements Limits Construction Financing Costs Permanent Financing Cost Rent-up and Operating Reserves Cost Attributed to Market Rate Units Other Features Development Cost Standards
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27 27 28 28 28 28 29 29 29 29 31 31 31 31
31 32 33 33
34 34 34 34 35 35 35 35 36 36 36 36 38 39 39 39 39 40 40
7.9. 7.10. 7.11. 7.12. 7.13. 7.14. 7.15. 7.16. 7.17. 8. 8.1. 8.2. 9.
Calculation of Tax Credits Operating Costs Operating Income Permanent Financing Provisions Funding Gaps State Housing Fund Eligible Basis Analysis Equity Gap Analysis Layering PROJECT COMPLIANCE MONITORING Project Compliance Monitoring Compliance Monitoring Procedure DEFINITIONS
41 41 41 42 42 42 43 43 44 44 45 48
EXHIBITS Exhibit B - Sample Letter of Community Assessment Exhibit C - Year 2005 DDA and QCT Exhibit D Year 2005 Mandatory Design Guidelines Exhibit E - Sample Legal Opinion Exhibit E-1 - Sample CPA Opinion Exhibit F - Example 10% Test Letter Exhibit F-1 - Project Cost Form Exhibit G - Final Cost Certification Letter Exhibit H - Imputed Incomes/Allowable Rents Exhibit I - Application Format Exhibit L - Market Demand Study Guide Exhibit W-Architect's Certificate Exhibit W-1-Fair Housing Act Accessibility Checklist Exhibit W-2-Contractor's Certificate Exhibit X Operational Risk Management Practices Exhibit Z Service Provider Questionnaire
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1.
INTRODUCTION
1.1. Background The federal low-income housing tax credit ("LIHTC" or "Tax Credits") 1 program was established by the Tax Reform Act of 1986, codified in Section 42 of the Internal Revenue Code of 1986, as amended ("IRC Section 42") to encourage construction and rehabilitation of low-income rental housing. The Arizona Department of Housing ("ADOH") is the housing credit agency responsible for allocating Tax Credits to Owners of qualifying residential rental projects ("Projects"). The Revenue Reconciliation Act of 1989 amended IRC Section 42 by adding Section 42(m), which requires allocating agencies to allocate lowincome housing tax credits pursuant to a Qualified Allocation Plan ("QAP," "Plan," or "Allocation Plan"). IRC Section 42(m)(1) provides as follows: (B) QUALIFIED ALLOCATION PLAN--For purposes of this paragraph, the term 'Qualified Allocation Plan' means any plan-(i) which sets forth selection criteria to be used to determine housing priorities of the housing credit agency which are appropriate to local conditions, (ii) which also gives preference in allocating housing credit dollar amounts among selected projects to-(I) projects serving the lowest income tenants, and (II) projects obligated to serve qualified tenants for the longest periods, (III) projects which are located in qualified census tracts (as defined in subsection (d)(5)(c) and the development of which contributes to a concerted community revitalization plan and (iii) which provides a procedure that the agency (or an agent or other private contractor of such agency) will follow in monitoring for noncompliance with the provisions of this section and in notifying the Internal Revenue Service of noncompliance with the provisions of this section which such agency becomes aware of and in monitoring for noncompliance with habitability standards through regular site visits. (C) CERTAIN SELECTION CRITERIA MUST BE USED--The selection criteria set forth in a Qualified Allocation Plan must include-(i) project location, (ii) housing needs characteristics, (iii) project characteristics including whether the project includes the use of existing housing as part of a community revitalization plan, (iv) sponsor characteristics, (v) tenant populations with special housing needs, (vi) public housing waiting lists, (vii) tenant populations for individuals with children, and (viii) projects intended for eventual tenant homeownership. (D) APPLICATION TO BOND FINANCED PROJECTS--Subsection (h)(4) shall not apply to any project unless the project satisfies the requirements for Allocation of a
1 The defined terms that are used in this QAP are in Section 9. 1
housing credit dollar amount under the Qualified Allocation Plan applicable to the area in which the project is located. There are two methods for obtaining a Tax Credit Allocation: (i) through an application submitted pursuant to this QAP and (ii) tax-exempt bond financing. Since the start of the Arizona program in 1987, over $700 million in private capital has been invested into the State of Arizona (the "State"), assisting in the development of nearly 23,000 Units of affordable housing. The LIHTC program has resulted in the production of affordable housing for low and moderateincome households throughout Arizona. 1.2. General And Specific Goals A. General Goals. The LIHTC program is not an entitlement program. The federal government has established annual ceilings on the dollar amount of Tax Credits that ADOH may allocate to qualifying Projects, and detailed eligibility standards and priority uses for available Tax Credits. ADOH awards Tax Credits following a competitive process. In furtherance of the statutory provisions affecting the Credit program, ADOH has established the following general goals for allocating Tax Credits in Arizona: To maximize the number of affordable rental housing Units added to the existing housing stock; To allocate Tax Credits to Projects that provide the greatest overall public benefits; To allocate all Tax Credits; To encourage development and preservation of appropriate rental housing for people and families that need governmental assistance to find and maintain suitable and affordable rental housing in the private marketplace; To enable substantial Rehabilitation of existing rental housing in order to prevent losses to the existing supply of affordable Units; To prevent the loss from the existing stock of low-income rental housing of those Units under expiring contracts with federal agencies or subject to prepayment which, without the Allocation of Tax Credits, would be converted to market rate Units; To maximize the utilization of Tax Credits; To provide an equitable distribution of Tax Credits across the State; and To provide opportunities for participation in the Tax Credit program to all qualified sponsors of low-income rental housing.
B. Specific Goals. In addition, in allocating Tax Credits, ADOH seeks to achieve specific goals. These are:
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To use Tax Credits in connection with rental housing "Projects serving the lowest income tenants"; To use Tax Credits in connection with rental housing "Projects obligated to serve qualified tenants for the longest periods"; To distribute Tax Credits by apportioning federal tax credit among proposals targeting low-income populations -- including large families, homeless persons, persons with special needs, and senior citizens; To hold competition among only those Projects considered sound investments of public funds; To expend public funds in the minimum amount necessary to achieve program goals; To administer the LIHTC program in a manner that encourages timely Project completion and occupancy; and, To encourage the highest available quality and design for Projects financed with Tax Credits.
From year to year, the State may supplement these general goals with more specific goals in order to meet specific affordable housing needs. 2. APPLICATIONS FOR TAX CREDITS
2.1. Amount of State's Annual Credit Authority Available Statewide The State will receive an annual Allocation of Tax Credits based on a population Allocation of $1.75 per resident, adjusted for inflation. 2.2. Maximum Tax Credit Reservation The maximum Reservation for any single Project or Scattered Site Project, not utilizing HOPE VI, will be $850,000 of the State's annual credit authority and no more than a total of $2.55 million in any year for any one Owner, Developer, Co-Developer or Affiliate of the Developer or Co-Developer with multiple Projects. ADOH may award Tax Credits for a maximum of three Projects each year to a Developer, CoDeveloper and any Affiliate of the Developer or Co-Developer provided one of the Projects is a rural Project. Developers of large Projects may be required to phase their Projects, accepting a Reservation for only one phase during the 2005 program year. Accepting a Reservation for only one phase during any program year will not preclude an Applicant from receiving a subsequent Reservation for a subsequent phase, nor does it guarantee that the Applicant will receive Reservations for any subsequent phases. Each HOPE VI proposal may only contain one Project regardless of the number or location of buildings. Each HOPE VI Project is subject to a maximum Reservation of up to $1.2 million from the 2005 State Annual Credit Authority. HOPE VI proposals that intend to utilize more than $1.2 million in any given year must be done in phases. Each HOPE VI proposal must identify all Tax Credit needs of all development phases in the first application submission. Additional Reservations from future rounds may not be made to the same phases that received a prior Allocation. All subsequent phases that have not
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received a previous Allocation are eligible for future Reservations, but are not guaranteed a Reservation. ADOH will award Tax Credits to HOPE VI proposals in an amount not in excess of $1.2 million. Applicants may not divide a Project into two or more Projects for the purpose of receiving more Tax Credits in the same year. If ADOH determines that multiple applications in the same year constitute a single Project, ADOH may deny the applications, or combine them into one application. An Allocation, as determined by ADOH, shall not exceed the amount ADOH determines is necessary for the financial feasibility of the Project and its viability as a qualified low-income housing Project. 2.3. Timetable and Application Submission Location ADOH will hold one Tax Credit application round in 2005. Applications will be available on or about the first business day in January 2005. Applicants must submit to ADOH one original and two complete copies of an application and a non-refundable application fee of $3,500 for each application on or before 5:00 P.M. March 15, 2005. Applications must be received at the reception desk of the Arizona Department of Housing located on the 2nd Floor of the Executive Tower at 1700 W. Washington, Suite 210, Phoenix, Arizona, 85007. Fax and e-mail submissions will not be accepted. All applications received between January 03, 2005 and 5:00 P.M. March 15, 2005, (the "Deadline Date") will be eligible for consideration. 2.4. Application Format and Compliance Application material must be in 8-1/2 x 11 format, placed in an adequate sized three ring binder, indexed and tabbed to correspond with the enumeration prescribed below. Exceptions: (1) all drawings/plans may be included unbound if they do not lend themselves to the 8-1/2 x 11 formats. All such plans should be in the smallest practical (readable) format. Maximum acceptable drawing size is C-size; and (2) items of significant volume (such as a real estate appraisal, Market Demand Study, Capital Needs Assessment or environmental reports) may be submitted as separate bound items. Each application must comply with the format and content of this QAP and present to ADOH a clear, unambiguous and complete application by the Deadline Date. ADOH may reject any application that does not conform to the requirements of this QAP or is submitted after the Deadline Date. 2.5. Application Review Process for Projects that are not Bond Financed Other than Bond Financed Projects, ADOH will score all applications in a competitive review process utilizing the criteria listed herein. ADOH will take the following steps in processing applications and reserving and allocating credits: (1) Set-Asides - Applications will be categorized based on Set-Asides elected and information included in the application. For Set-Aside information see Section 2.7. of this QAP; (2) Eligibility Requirements - ADOH will review the application and any other information pertaining to the Applicant and other Development Team members to determine if the eligibility items identified in Section 2.6. have been met. If the requirements outlined in Section 2.6. have not been met, ADOH may reject the application. (3) Project Score - Each Project will be reviewed and receive points based on the scoring criteria set out in this QAP. Applications will be scored based SOLELY on the information supplied in the application. For Project Scoring information refer to Section 2.8 of this QAP.
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(4) Project Ranking - Each application must compete for available credits and will be ranked based on the points received. The Applicant must submit complete documentation to receive points. Notwithstanding the Project's score, if the Project's Market Demand Study does not adequately demonstrate strong new demand for the specific development being proposed without causing economic disruption to other comparable properties in the market, it shall not receive an Allocation. The Market Demand Study is required as a protection against saturation of Low-Income Units and to ensure absorption of new Units, (5) Notification of Local Government - ADOH will seek a letter of consent to the Project from the Local Government in the form of Exhibit B. The letter shall be signed by the City or County Manager (or other appropriate governmental official with specific knowledge of affordable housing needs) or be adopted by resolution of the governing body. If the Local Government does not consent to the Project, ADOH will reject the application. ADOH will notify the Local Government of an application and request comment on the proposed Project. The notification will be sent directly from ADOH following the Eligibility Review. ADOH will reject applications that are deemed unfavorable by the Local Government. (6) Reservation List - ADOH will issue a Reservation to those Projects that score highest in relation to all applications, meet the Eligibility Requirements, demonstrate a strong market demand, have received the written consent of the Local Government, and underwriting analysis. ADOH, based upon an evaluation of all applications and in its sole discretion, will issue a letter notifying the Applicant of the Reservation of Tax Credits, which shall include a request for payment of the Reservation Fee described in Section 6, and the requirements needed for the Applicant to satisfy the Carryover Allocation requirements. (7) Underwriting - ADOH will conduct the first of three underwriting reviews for all Projects. ADOH will establish the Reservation amount following the procedures in Section 2.2., "Maximum Tax Credit Reservation," and in Section 7, "Underwriting," of this QAP. ADOH may require clarifications or other information pertaining to the feasibility of the proposed Project. The Applicant must submit the supplemental underwriting information within 10 business days from the date of the written notification from ADOH. ADOH may reject applications during the underwriting process based on fundamental defects such as arithmetic errors or unfilled funding gaps. (8) Tax Credit Reservation - ADOH will determine the actual Reservation based upon the Applicant's request. Although the Reservation may not necessarily equal the Applicant's request, the Reservation shall not exceed the amount requested. The final Allocation shall be determined by ADOH, in its sole discretion, in accordance with Chapter 7 of this QAP. 2.6. Eligibility Requirements A. General Requirements. To ensure that all Projects have a high probability of completion, Applicant and Project must meet the eligibility requirements set forth in this Section 2.6. The Applicant must submit one original and two copies of a complete and accurate application organized in prescribed sequence and format, as required by this QAP and by the "Arizona Year 2005 Low-Income Housing Tax Credit Program Application Forms and Instructions," together with the non-refundable application fee. ADOH will not accept any additional information, amendment or change to the application after the Deadline Date. Notwithstanding the foregoing, ADOH may make inquiries to the Applicant, architects, engineers, financial institutions and the Local Governments in order to complete the eligibility documentation or to verify the information submitted. ADOH will consider such supplemental documentation for eligibility purposes only, and will not consider the supplemental information in scoring
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the application. ADOH eligibility review will include a review for geographic distribution of the Projects. An Applicant must be an existing legal entity authorized to conduct business in Arizona and in good standing with the office of the Secretary of State of Arizona. All documents that require a signature must be signed by the Applicant's authorized representative. ADOH will reject forms signed on behalf of an entity that is not duly formed or by a representative without authority. B. Eligibility. Applications must meet each of the following eligibility requirements. ADOH will reject the application if these requirements are not met. (1) Payment of ADOH fees - The application fee is due with the application. ADOH will reject any application that is not accompanied by the application fee. (2) Land Control (a) Land Control for all land needed for the Project must be evidenced by a written governmental binding commitment to transfer the land to the Applicant, a recorded deed or long term lease in the Applicant's name, a lease option or by a fully executed purchase contract or purchase option between the Applicant and record Owner of property. If a purchase contract or purchase option is submitted, the agreement must provide for, respectively, either a closing date or an initial term lasting until September 30th of the year in which the application is submitted. The Applicant must submit the following to ADOH (enclose all required documents at Tab I): (i) (ii) A "Status (Condition) of Title Report" for the property dated within 30 calendar days of the date of the application. For Projects that are not located on governmental or Tribal land, the Applicant must establish that it has legal control of the property by submitting a recorded deed, purchase agreement, purchase or lease option, lease agreement (for a term at least equal to the duration of the Extended Use Agreement), or a resolution by a governmental agency that owns the property.
(iii) For Projects that are located on governmental or Tribal lands, the Applicant must establish that it has legal control of the property by submitting: (1) an agreement between the Applicant and the Tribe or other government to enter into a lease of specific real property for a term at least equal to the duration of the Extended Use Agreement, and (2) a resolution of a Tribe or other governmental agency authorizing the Tribe or governmental entity to enter into the agreement. For Tribal leases only, ADOH will consider the length of the lease to be the original term of the lease plus the term of any option to renew, provided that the option to renew is held solely by the Applicant. (iv) In cases requiring use of powers of eminent domain by the Local Government, the Applicant must enclose evidence that a condemnation lawsuit has been filed for the specific parcels of real property upon which the Project will be situated together with the court's order of possession. (v) If the Applicant is submitting a purchase agreement, option, or lease agreement to acquire the real property, the purchase agreement, purchase or lease option, or lease agreement must specify purchase price or rental amount. The term of any lease agreement must be a minimum of 30 years.
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(vi) Any option, with available extensions, should be of sufficient duration that the Applicant can close on the land prior to year-end, subject to the issuance of the Reservation. (b) Applicants must acquire land and buildings for the Project from unrelated third parties in armslength transactions. An Applicant may file a written request for a waiver of this requirement with ADOH at the same time that the Applicant filed its application. A written request for waiver must include a full justification for the waiver and it must include, as attachments, an appraisal, which is less than six months old, prepared by an Arizona Certified General Real Estate Appraiser. ADOH may grant the waiver request if it determines the Applicant has demonstrated adequate justification and complied with the requirements of this paragraph. (3) Satisfactory Progress and Compliance - ADOH may reject applications from Applicants or for Projects having Development Team Members that do not meet the requirements of Section 4.2 of this QAP or have failed to comply with the Tax Credit requirements and conditions in previous applications or developments including, but not limited to, payment of any other fees as described under Subsection B(1) of this section and Chapter 6 of this QAP. (4) Qualified Project - The Project must be a qualified residential rental Project, which meets the requirements of IRC Section 42. (See Legal Opinion, Exhibit E.) (5) Placed in Service - The Project must not have been Placed in Service prior to the date the Applicant filed the application. (See Legal Opinion, Exhibit E.) (6) Form C and Applicant's Certifications - FORM C must be complete and accurate, and signed by the appropriate party. The Applicant is required to make certain certifications in the Applicant Affidavit, Release, and Oath (included in Form C, "Low-Income Housing Tax Credit Application") including a certification that ADOH's minimum design features (Exhibit D) will be complied with in the construction of the Project and that, if they are not, an acknowledgement that all credits awarded to the Project may be surrendered to ADOH. Enclose at Tab C, Form C and the Applicant Certification. (7) IRS Form 8821 - Applicants are required to submit complete and executed copies of IRS Form 8821, "Tax Information Authorization," for the Applicant and each Development Team Member authorizing the Arizona Department of Housing as "Appointee" to receive from the IRS available information regarding any Financial Beneficiary's (see Chapter 9) conduct of its business with the IRS relating to the Low-Income Housing Tax Credit Program. Such information received from the Internal Revenue Service may be used by ADOH in its sole discretion to disqualify an application pursuant to Chapter 4 of this Allocation Plan. Enclose IRS Form 8821 at Tab C, behind the Applicant Affidavit, Release, and Oath. (8) Legal Opinion - Must be on professional letterhead and in substantially similar form to Exhibit E "Sample Legal Opinion". However, it should be noted that the attorney providing the opinion should be as detailed as possible describing all the unique characteristics of the development and how those characteristics qualify for the Tax Credit program. The Legal Opinion must clearly address the 10-year rule regarding the eligibility for acquisition tax credits (See Chapter 9). If the legal opinion submitted in the application is unsatisfactory, ADOH will require the Applicant to update the legal opinion or require an additional opinion from another attorney at the sole expense of the Applicant. Enclose Legal Opinion at Tab D. (9) CPA Opinion - Must be on professional letterhead and in substantially similar form to Exhibit E-1 "Sample CPA Opinion." Enclose CPA Opinion at Tab E.
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(10) Legal Formation The Applicant must submit evidence that the Applicant and Developer are duly formed legal entities authorized to transact business in the State of Arizona and in good standing with the Office of the Secretary of State of Arizona. Enclose at Tab F of the application the Certificates of Good Standing or Existence, as appropriate, , and all other documentation required under this section. (a) Corporations. If the Applicant or Developer is incorporated in Arizona, a Certificate of Good Standing, issued by the Arizona Corporation Commission and dated not earlier than 30 days prior to the Deadline Date, should be submitted. Applicants and Developers incorporated in another state and doing business in Arizona should submit the following: a Certificate of Good Standing or its equivalent from the state of incorporation dated not earlier than 30 days prior to the Deadline Date and a Certificate of Authority to Transact Business in Arizona or a Certificate of Good Standing for such foreign corporation, issued by the Arizona Corporation Commission and dated not earlier than 30 days prior to the Deadline Date. (b) Limited Partnerships. If the Applicant or Developer is a limited partnership organized under the laws of Arizona, a Certificate of Existence, issued by the Arizona Secretary of State and dated not earlier than 30 days prior to the Deadline Date, should be submitted. Applicants and Developers organized under the laws of another state and doing business in Arizona should submit the following: a Certificate of Existence or its equivalent from the state of organization, dated not earlier than 30 days prior to the Deadline Date, and an Arizona Certificate of Foreign Limited Partnership from the Arizona Secretary of State or a Certificate of Existence dated not earlier than 30 days prior to the Deadline Date. (c) Limited Liability Companies. If the Applicant or Developer is a limited liability company organized under the laws of Arizona, a Certificate of Good Standing, issued by the Arizona Corporation Commission, dated not earlier than 30 days prior to the Deadline Date, should be submitted. Applicants and Developers organized under the laws of another state and doing business in Arizona should submit the following: a Certificate of Good Standing or its equivalent from the state of organization dated not earlier than 30 days prior to the Deadline Date and an Arizona Certificate of Authority to Transact Business in Arizona issued by the Arizona Corporation Commission and dated in the year of application or a Certificate of Good Standing for such foreign limited liability company dated not earlier than 30 days prior to the Deadline Date. (11) Non-Profit Information - Under Tab G, the Applicant must submit evidence that the Applicant is a current 501(c)(3) or (4) entity. In addition, the Applicant must execute and enclose at Tab G Form G, a "Certificate of Non-Profit Participation," and all other evidence required. In the case where a governmental or tribal agency is applying for non-profit consideration, it must provide the appropriate 501(c)(3) or (4) documentation, a letter from the executive officer of the Local Governmental or tribal agency. "Non-profit Projects" are Projects in which a qualified non-profit organization (i.e., an IRC Section 501(c)(3) or (4) organization) owns an interest (directly or through a partnership) and materially participates within the meaning of IRC Section 469(h)(i) in the development and operation of the Project throughout the compliance period. The non-profit organization may not itself be an Affiliate of or controlled by a for-profit organization. Material participation is defined at IRC Section 469(h)(i) as involvement "in the operations of the activity on a basis that is regular, continuous and substantial." The ADOH defines "substantial" as having the authority or right to, among other things, participate in the decision-making process for design, location, materials, and management of the Project. In addition, ADOH requires that the non-profit organization provide on a best-evidence basis: (1) IRS documentation of status 501(c)(3)
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or 501(c)(4); (2) a description of the nonprofit organization and its activities, to include the promotion of affordable housing in its articles; (3) evidence that it or its officers or members have experience in developing or operating low-income housing; (4) evidence (in the Letter of Intent received from the investment syndicator) that it holds the right of first refusal to acquire the Project following the fifteen-year compliance period; (5) evidence that it has developed an operating plan for the Project covering its role in developing and managing the Project, including its participation in the Developer fee; its control of Project reserves; its plan for maintenance, replacement, and renovation; and its oversight of marketing and of compliance with IRC Section 42; (6) the names of board members of the nonprofit organization; (7) the names and resumes of all paid full-time staff; (8) the sources of funds for annual operating expenses and current programs; (9) evidence of financial capacity in the form of balance sheets and income statements for the past two years; and (10) Form G, "Certificate of Non-Profit Participation," certifying that the nonprofit organization will materially participate in the development and operations of the Project on a basis which is regular, continuous, and substantial. (12) Development Team The Applicant must enclose at Tab H, Form H, an identification of development parties and financial statements of the Developer or Co-Developer, which must be in full and final form. Applications that do not identify a contractor must do so prior to ADOH issuing a final Reservation. The Developer must demonstrate that it possesses the experience and capacity to successfully complete a proposed Project and any other Projects under construction, and that it has developed Projects of comparable size and financing complexity. If such capacity and experience are not demonstrated, ADOH may reject the application. ADOH may check the references and credit of the Applicant and other Development Team members as it deems necessary to determine Developer capacity. (13) Identity of Interest- There exists an "Identity of Interest" between the Developer, the Management Company or architect and any other Development Team member or prospective member if there is any financial or ownership interest, direct or indirect, between the Developer and the other Person. Where there is an Identity of Interest between the Developer and the Builder, the total Developer, Consultant, and Builder fees will be limited to the developer fee in Section 7 plus Builder's overhead and general requirements. See Section 7.2. ADOH will review other identities of interest among members of the Development Team and may, reduce fees to be paid by the Developer to another Development Team member. Enclose at Tab H of the application Form H, disclosing specifically in Section 11 of Tab H every Owner of the Developer, the Builder, and the Consultant. (14) Zoning The Applicant must enclose a fully completed Form J. FORM J must be signed by the appropriate governmental planning and/or zoning official and must evidence that the proposed site is zoned or conditionally zoned for the proposed use. Developments sited on land that is not subject to zoning or which is zoned agriculture are exempt from this eligibility requirement. For sites with conditional zoning approval for the proposed use, documentation from the Local Government stating the specific conditions to be satisfied must be included under Tab J. ADOH may determine if the conditions are minor. Projects that are not zoned with minor conditions or are conditionally zoned must obtain final approval by May 15th of the year following the year in which the Carryover Allocation is made. (15) Financial Ability to Proceed - As evidence of commitments for funding sources the Applicant must enclose at Tab K the following required documents: (a) A Letter of Interest or Intent for both construction period and permanent financing, with a term sheet, where applicable, from each funding source for, in the aggregate, the full amount
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of the Project's construction and permanent financing needs (including Tax Credit investors). For all government sources of funds, submission of a copy of the Award Letter is required. However, Applicants seeking funding from a governmental or quasi-governmental funding source, other than State Housing Funds, that has not issued a funding decision prior to ADOH's application deadline, must submit a Letter of Interest or Intent from the funding source with the application. (b) The Letter of Interest or Intent from each lending source (permanent and construction), excluding any equity investors, should include (i) a term sheet (ii) amount of the loan, (iii) interest rate, including all points, (iv) amortization period, if applicable, (v) term of the loan, (vi) loan-to-value factor, (vii) maximum and minimum debt service coverage allowable (not required if the permanent lending source is a governmental or tribal entity), (viii) all commitment and/or origination fees, (ix) and a description of all other fees directly attributed to the funding of the loan. (c) For a Developer's loan or Deferred Developer's Fee, insert in the Permanent Financing Table of the application the amount needed to balance sources of funds with Total Estimated Cost. Documentation for Deferred Developer Fee will be required with the final underwriting package. (d) ADOH may determine whether the Letters of Interest or Intent, Award Letters, or Commitment Letters are satisfactory; whether a lender or investor possesses the financial capacity to make a specific loan or investment; and whether lenders are licensed to conduct business in the State. A change in the financing source or financing terms after Reservation of credits may result in all or a part of the credits being recaptured or reduced by, or returned to ADOH. (e) Except for those Applicants who have submitted an application for State Housing Funds, if an Applicant intends to use a funding source to fund a funding gap, the Applicant must include a Letter of Interest or Intent from the prospective Lender of gap funds and a Letter of Interest or Intent from an alternative Lender as well. (f) The application must demonstrate that the Project will be financed in such a manner that maximum mortgage payments supportable by Project cash flow are made by the Owner. Applications with coverage ratios above 1.30 for Projects with less than 50 Units or 1.20 for Projects of 50 Units or more will be rejected unless the Applicant or lender has submitted a waiver request justifying higher debt service coverage. Coverage ratios above 1.30 or 1.20, as applicable, must be approved by ADOH. Applications submitted with coverage ratios below 1.15 will be rejected unless the Applicant provides an irrevocable source of adequate additional funds. (g) ADOH may reject any application with unfilled funding gaps. See Section 7.13. ADOH will consider exceptions only in cases where a State Housing Fund application has been submitted concurrently with the application for Tax Credits, or letter of credit in the event other funding sources are not available. (h) If applicable, include a commitment from the entity facilitating any operating deficit reserve/escrow funds. See Section 2.6(B)(23).
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(16) Market Demand Study The Applicant must submit a Market Demand Study at Tab L. The Market Demand Study must be in final form, executed by the analyst and include a statement from the analyst that the report was prepared according to ADOH's Market Demand Study Guide (see Exhibit L), that the information included is accurate, and that the report can be relied upon by ADOH to present a true assessment of the housing market in the primary area of the proposed development. ADOH may determine the Market Demand Study supplied with the application to be unsatisfactory and may require additional information at the sole expense of the Applicant. Also see Section 2.4., "Application Format." (17) Special Needs Populations - Applicants that intend to serve Special Needs Populations must complete and execute Form M describing services to be provided and must include any service plans or agreements. Enclose Form M-1, and all documentation required by Form M-1 at Tab M as detailed in Section 2.8(10). (18) Priority Market Need The Applicant must complete FORM N and enclose it at Tab N. Tab N must be accurate and match page 8 of Form C. Tax Credit Unit income and rent thresholds cannot exceed the maximum established by IRC Section 42 (60% AMGI when using the 40/60 convention or 50% AMGI when using the 20/50 convention). The maximum rent threshold is based on the income level selected on FORM N. Example: If the 40% AMGI rent level is selected on FORM N, then the rents may not exceed the maximum allowable rent per IRC Section 42. However, the income of a qualified tenant may exceed the 40% AMGI level by a maximum variance of 5% unless IRC Section 42 or other federal requirements prohibit such a variance. (19) Tenant Ownership The Applicant must include at Tab O of the application: (1) a Letter of Intent from a qualified non-profit organization to purchase the Units, including a calculation of the purchase price and (2) a detailed description of the ownership proposal that includes financial counseling services plan, tenant identification, Unit pricing in accordance with IRC Section 42(i)(7), a program for down-payment assistance, a marketing strategy, and a proposed sale agreement. (20) Historic Preservation - The Applicant must enclose at Tab P all documentation evidencing historic preservation as detailed in Section 2.8.(F)(1), "Historic Preservation." (21) Monitoring Compliance The Applicant must include at Tab Q a plan that describes the method, training and education of the management agents responsible for the daily adherence to IRC Section 42, State and local requirements. (22) Marketing Plan- The Applicant must include at Tab R an affirmative marketing plan in accordance with fair housing requirements. (23) Pro Forma and Operating Expenses -The Applicant must include at Tab S a 15-year pro forma and operating expense data. The 15 year pro forma must be signed by the first mortgagee (or the syndicator/investor if the Project is funded 100% by equity) that exclusively reflects the following language verbatim: "We acknowledge that this pro forma substantially matches the assumptions used in our underwriting and due diligence of the mortgage (or equity investment)." The pro forma must precisely reflect the rent structure in the application, all lenders' assumptions such as principal and interest payments, non-rental income, detailed operating expenses, required reserves, annual fees, debt service coverage ratio etc., as well as other characteristics that impact the financial feasibility (for example, cost of Supportive Services). The 15Year pro forma must mirror the operating assumptions and rent structure as shown in the application.
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If the pro forma reflects negative cash flow in any year, the application shall demonstrate the funding and utilization of an operating deficit escrow account or describe the source of the operating deficit funds. A commitment from the entity facilitating the operating deficit reserve/escrow funds needs to be included at Tab K with the other funding source documents. The 15 Year pro forma may reflect rental assistance only if such assistance is evidenced at Tab K with the other funding source documents. Applicants shall submit at least two forms of data supporting the operating expenses stated in the pro forma (for example, database information from similar Projects, comparable Project information as illustrated in a Market Demand Study, IREM information or Real Data information). ADOH may require submission of the audited financial statements for comparable Projects owned by the Applicant. Rehabilitation Projects may submit 3 years of historical information as evidence of operating expense assumptions. (24) Project Location The Applicant must include at Tab T of the application: (1) an 8x10 map or fold-up map clearly indicating the Project location; (2) detailed directions to the site from the nearest major intersection; (3) an additional 8x10 or fold-up map indicating the following facilities located within 2 miles of the proposed development: a. b. c. d. e. f. g. Existing LIHTC or any other governmental subsidized housing developments Retail centers Medical complexes Recreational Facilities Educational Facilities Large scale employment centers Public transportation
(25) Community Revitalization - The Applicant must enclose at Tab U the following: (i) a copy of the municipal ordinance or resolution by which the governing body of the municipality or county designated the area as a housing priority area or evidence the property is located in one of the following: (a) a federal empowerment zone or federal enterprise community, (b) a Redevelopment Area (c) an established HUD Neighborhood Revitalization Strategy Area, or (d) a geographic area or parcel of property that has been established by the Local Government as part of a comprehensive affordable housing plan and (ii) a map showing boundaries of the housing priority area and the location of the Project within the housing priority area. The map must clearly show the names of the roads, streets or other boundaries of the housing priority area and also clearly reflect the location of the Project on such roads or streets. If the resolution or ordinance does not include the specific boundaries of the housing priority area, then also include Form U, signed by an authorized representative of the municipality or county, stating that the Project is within the boundaries of the designated housing priority area. (26) Utility Allowance Schedule The Applicant must include at Tab V of the application: (1) letters from the local utility providers indicating water, sewer, and electrical utilities are available to the site; and (2) a copy of the most recent and current utility allowance schedule from the local Public Housing Authority, utility company or other source. The current utility allowance schedule is
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the basis for the utility allowances entered on page 6 of the application. The utility allowance schedule, published by the local Public Housing Authority, utility company, or other source (see IRS Regulation 1.42-10 to determine the appropriate source of the schedule), must be accompanied by a letter from the issuing authority dated no sooner than 30 days prior to the date of application submission. The letter from the issuing authority must state that the utility allowance schedule submitted is the current schedule. (27) Drawings and Plans The Applicant must include at Tab W the preliminary drawings and renderings of the development. Include (1) a site plan showing the general development of the site, including the building and parking location and proposed landscaping; (2) if the Project proposes a community facility, include the community building layout and net floor area; and (3) Elevations for each proposed building and clubhouse. The Applicant must submit plans and specs (submitted to the Local Government for approval) at the time of Carryover. Also enclose at Tab W, completed Exhibit W. (28) Property Design Standards - As applicable, all newly constructed and rehabilitated properties must meet the current Uniform Building Code, the National Standard Plumbing Code, the National Electric Code, the 2000 International Energy Code, the International Building Code and the Federal Fair Housing Act (42 U.S.C. 3601, et seq.), the Arizona Fair Housing Act (A.R.S. 41-1491 through 41-1491.37), and HUD Fair Housing Regulations (24 C.F.R. Part 100, subpart D), the Uniform Federal Accessibility Standards (Section 504 of the 1973 Rehabilitation Act) and the Americans with Disabilities Act (42 U.S.C. 12101 through 12213). The Applicant must include at Tab W, completed Exhibits W, W-1, and W-2 signed by the Architect for the Project and the general contractor respectively for the Project certifying that the Project meets the above design standards. (29) Lead-based Paint - If the Project includes a building or structure that was built before January 1, 1978, the Applicant must have a lead-based paint inspection completed by a certified lead-based paint inspector. That inspector must prepare and the Applicant must include in its application at Tab W a complete copy of that report. If the report indicates the presence of lead-based paint, the Applicant must include at Tab W : (1) a written amelioration plan for the elimination and disposal or encapsulation of the lead-based paint, and (2) a written on-going maintenance plan to manage the lead-based paint. (30) Project Schedule The Applicant must complete and execute Form X and insert it at Tab X. (31) Capital Needs Assessment - Applicants are required to provide to ADOH a Capital Needs Assessment ("CNA") for all rehabilitation and combined acquisition and rehabilitation Projects. Insert at Tab Y a CNA that meets the requirements outlined below. Applicants must include a statement from the architect or engineer that the report was prepared according to ADOH's CNA Guidelines and that the information included is accurate and that the report can be relied upon by ADOH to present a true assessment of the proposed rehabilitation budget and immediate repairs required at the property. ADOH may determine the CNA report is unsatisfactory and may require additional information at the sole expense of the Applicant. The CNA shall examine and analyze the following building components: Site, including topography, drainage, pavement, curbing, sidewalks, parking, landscaping, amenities, water, storm drainage, gas and electric utilities and lines;
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Structural systems, both substructure and superstructure, including exterior walls and balconies, exterior doors and windows, roofing system, and drainage; Interiors, including Unit and common area finishes (carpeting, vinyl tile, plaster walls, paint condition, etc.), Unit kitchen finishes and appliances, Unit bathroom finishes and fixtures, and common area lobbies and corridors; Mechanical systems, including plumbing and domestic hot water, HVAC, electrical, and fire protection; and Elevators.
The CNA report shall include the following major parts: Critical Repair Items. All health and safety deficiencies, or violations of housing quality standards, requiring immediate remediation. If the Project has tenants, these repairs are to be made a first priority. Two-Year Physical Needs. Repairs, replacements, and significant deferred and other maintenance items that need to be addressed within 24 months of the date of the CNA. Include any necessary redesign of the Project and market amenities needed to restore the property to the standard outlined in this QAP, Exhibit D. These repairs are to be included in the development budget and funded by construction-period sources of funds. Long-Term Physical Needs. Repairs and replacements beyond the first two years that are required to maintain the Project's physical integrity over the next twenty (20) years, such as major structural systems that will need replacement during the period. These repairs are to be funded from the reserves for replacement account. Analysis of Reserves for Replacement. An estimate of the initial and monthly deposit to the reserves for replacement account needed to fund long-term physical needs, accounting for inflation, the existing reserves for replacement balance, and the expected useful life of major building systems. This analysis should not include the cost of the critical repair items, the two-year physical needs, or any work items that would be treated as operating expenses.
The professional preparing CNA report must: (a) (b) Be an architect or mechanical/structural engineer licensed by the State. Conduct site inspections of a minimum of 35 percent of all Units. Units shall be randomly sampled while taking into consideration the Unit size mix, e.g., one-bedroom, twobedroom, etc. All vacant Units must be inspected. Identify any physical deficiencies as a result of (i) visual survey, (ii) review of pertinent documentation, and (iii) interviews with the property Owner, management staff, tenants, community groups, and government officials. Identify physical deficiencies, including critical repair items, two-year physical needs, and long-term physical needs. These should include repair items that represent an immediate
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(c)
(d)
threat to health and safety and all other significant defects, deficiencies, items of deferred maintenance, and material building code violations that would limit the expected useful life of major components or systems. (e) Explain how the Project will meet the requirements for accessibility to persons with disabilities. Identify the physical obstacles and describe methods to make the Project more accessible, and list needed repair items in the rehabilitation plan. Prepare a rehabilitation plan, addressing separately all two-year and long-term physical needs.
(f)
(g) Prepare a replacement reserve schedule, including an estimate of the initial and annual deposits, accounting for inflation and based on a 20-year term. (h) Conduct a cost/benefit analysis of each significant work item in the rehabilitation plan (items greater than $5,000) that represents an improvement or upgrade that will result in reduced operating expenses (e.g., individual utility metering, extra insulation, thermo-pane windows, setback thermostats). Compare the cost of the item with the long-term impact on rent and expenses, taking into account the remaining useful life of building systems.
(32) Internet Access - All Units shall be wired with three networks back to a central location: 1) a network for phone using CAT-5 wire; 2) a network for television using COAX cable, and 3) a network for data using CAT-5 wire. 2.7. 2005 Set-Asides (A) BASED ON SCORING. An Allocation will not be made to more than one family, and one elderly category Project (one Project for each Special Needs Project category) with no more than $850,000 being devoted to Special Needs Populations Projects per Tax Credit round in cities, towns, and Census Designated Places with populations of 50,000 or less according to the 2000 U.S. census data. As a priority, and at the sole discretion of ADOH, ADOH will award Tax Credits first to the highest-scoring applications meeting all Eligibility requirements and Underwriting Criteria in each of the following setaside categories: SCORING SET-ASIDES A total of $1.2 million is available for HOPE VI Projects Acquisition/Rehabilitation development located in an urban area where 100% of the Units undergo rehabilitation Acquisition/Rehabilitation development located in a rural area where 100% of the Units undergo rehabilitation A total of $850,000 is available for Projects allocating 100% of their Units to Special Needs Populations. A total of $1,000,000 for Senior Projects allocating 100% of their Units to Seniors (62 or older or handicapped) with Supportive Services. A total of $850,000 for Projects located on Tribal Lands One Project located in each of the four Rural Councils of Governments Regions (see Chapter 9, "Council of Governments"). In cases where another set-aside has provided a development within a particular Rural Council of Governments Region, no additional development shall be provided by this set-aside.
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HOPE VI Acquisition/Rehabilitation Urban Acquisition/Rehabilitation Rural Special Needs Populations Senior Set-Aside Tribal Land Rural Council of Governments
Non-Profit Set-Aside
20% of the State's annual credit authority is set-aside for "non-profit Projects," as defined in Section 2.6(B)(11) of this QAP. Only non-profit Projects that meet all of the eligibility requirements will be eligible for an Allocation of non-profit set-aside credits. The Allocation of non-profit set-aside credits will be based on the rankings of non-profit Projects under the scoring system. 10% of annual credit authority is set aside for Projects to be located in rural areas. For purposes of this paragraph, "rural areas" shall mean counties fewer than 400,000 in population according to the most recent United States decennial census and "Census County Divisions" under 50,000 in population in counties with populations of 400,000 or more according to the most recent United States decennial census. These Projects may compete for overall credit authorization. If no application meeting the requirements of this QAP for rural areas is submitted, rural set-aside funds may be pooled with non-set-aside funds for Allocation to any Project.
Rural Set-Aside
(B) In its sole discretion, ADOH may limit the number of developments in a specific market or geographical area based on concentration or negative impact in a given market area. In the case where multiple applications are submitted for a given market area, ADOH will select the application that scores the highest within its set-aside category. If the Project does not fall within a set-aside category, selection will be based on scoring and new market need. If multiple applications are filed for a given market area proposing to serve different populations (e.g., elderly, family or Special Needs Populations), ADOH will analyze the applications to ensure that neither Project will be unnecessarily redundant or may cause harm to the other. (C) DIRECTOR'S DISCRETION. $850,000.00 of the State's annual Low-Income Housing Tax Credit authority is reserved by and for the Director of ADOH to allocate in the Director's sole and absolute discretion to Projects that need additional credits because of technical errors of ADOH or Projects with severe hardships. (1) SEVERE HARDSHIP. Requests based on severe hardships may be submitted from 1-3-05 to 8-15-05 along with an additional application fee of $2,500. Hardship requests must be documented to the satisfaction of ADOH and must demonstrate the existence of an unforeseen hardship or emergency situation where the completion of the Project is jeopardized without an award of additional Tax Credits. (2) MAXIMUM CREDIT ALLOCATION. Applicants cannot apply for Tax Credits from the Director's discretion if they have already received the maximum credit Allocation allowed by eligible basis limits, gap financing limits or the Maximum Tax Credit Reservation limits. (3) UNRESERVED SET-ASIDE. Any Director's Discretion Set-Aside authority not reserved to specific Projects by August 15, 2005, or such earlier date that may be selected by the Director, will be released to be used for Projects on the Year 2005 waiting list. (D) Those Projects meeting the eligibility requirements, but not ranking high enough to receive Tax Credits during the Year 2005 application round, will be placed on a waiting list and remain eligible to receive any Tax Credits returned during the Year 2005. Depending upon availability returned Tax Credits will be allocated to the next highest scoring Year 2005 Project(s) in the queue meeting threshold criteria as described above.
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2.8. 2005 Project Scoring (A) ADOH will conduct scoring based solely on the information submitted in the application. (B) A self-scoring sheet will be provided with the application and will require the Applicant's signature. It is to be submitted behind the cover letter at Tab A. (C) ADOH will not award points if the correct forms or required information are not submitted, or are not submitted at the correct tab. (D) ADOH will count Employee Units (see Chapter 9, Definitions) as 60% Low-Income Units in making scoring calculations. (E) The Applicant's commitment to serve specific populations as set-asides shall be binding for the duration of the Extended Use Period and shall be included in the recorded Extended Use Agreement. ADOH will monitor resident files to determine that the set-asides are being honored. (F) ADOH will score Projects in the following 14 categories: (1) Historic Preservation: 25 points 15 points for (i) A letter from the National Parks Service or State Historic Preservation Office (SHPO) identifying the structure as individually listed in the National Register of Historic Places, or (ii) A structure certified by the National Parks Service, SHPO Office or Certified Local Government as contributing to a Register District (a Register District is a designated area listed in the National Register, or listed under State or Local Statute as substantially meeting the requirements for listing of districts in the National Register), or (iii) Location of a Project within an area that has been zoned an historic area. The Applicant must include the municipal zoning ordinance that was adopted on or before the Deadline Date and a letter from the local municipality indicating that the design will meet the requirements outlined in the zoning ordinance. (At Tab P, submit the appropriate evidence as identified above.) 10 points- for Projects that have received a preliminary approval from SHPO, National Parks, or the Local Government for historic Tax Credits. (At Tab P, submit the preliminary approval for the Historic Tax Credits.) (2) Acquisition/ Rehabilitation: 30 points Projects containing Acquisition/Rehabilitation and New Construction will be given points in this category only if the rehabilitation Units total 50% or more of the total Project and the Acquisition/Rehabilitation is 100% of the acquired Units. The type of rehabilitation improvements and the amount of rehabilitation costs shall be appropriate for the Project and proportionate to the benefit as determined by ADOH. ADOH will utilize the services of a cost estimator in determining whether the rehabilitation costs are reasonable. The Applicant shall be responsible for the costs of the cost estimator. Cost of rehabilitation per Unit is determined by adding Direct Construction Costs and appliances, then dividing that sum by the number of qualified rehabilitation Units. Applicants should indicate that the Project is a Rehabilitation or Acquisition/Rehabilitation in the Cover Letter of the application (Tab A) and on Form C, as applicable.
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Cost of Rehabilitation per Unit $15,000+ 14,999-10,000 9,999-5,000 (3) Tenant Ownership: 3 points
Points Awarded 30 15 10
3 points - will be awarded if 100% of the Project is designed for tenant ownership after the 15-year compliance period. (At Tab O, provide: (A) Letter of Intent from a qualified non-profit organization to purchase the Units, including how the purchase price will be calculated at the end of the 15 year compliance period should no qualified tenants be identified; (B) a detailed description of the ownership proposal to include: (i) financial counseling services; (ii) how the eligible tenants will be identified and offered the right of first refusal; (iii) how the Units will be priced in accordance with IRC Section 42(i)(7); (iv) down payment assistance; (v) marketing strategy; and (vi) proposed sale agreement. Applicants that intend to utilize these points shall be required to execute and record an Extended Use Agreement that indicates the provisions set forth above for the remaining compliance period. Also, there are additional fees associated with these points. See Chapter 6, Fees. Only Projects consisting of exclusively single family, duplex or four-plex designs with no more than 60 Units are eligible for this scoring item. (4) City, Town or County not receiving an Allocation of Tax Credits in past: 20 points 20 points - will be awarded to Projects that are located within a City, Town, unincorporated area in any County, or tribal reservation within the State that has not had an Allocation for a Project within its geographical limits within the last several years. This determination will be made by type of Project (i.e. Family, Elderly, Special Needs Populations). A list of qualified Cities, Towns or Counties is available through ADOH. Note: The Market Demand Study must also support the need for affordable housing located in these areas. Number of Years 10+ 5-9 3-4 Points Awarded 20 10 5
(5) Developer Experience Points for New Construction or Rehabilitation: Maximum of 15 points awarded for Developer experience category. Up to 15 points are awarded for Developer experience with either rehabilitation or new construction of residential rental Projects using the LIHTC program or significant participation by a Developer(s) with a demonstrated track record in the timely development of new construction or rehabilitation of residential rental housing. In scoring this category, ADOH will count the number of residential rental Projects Placed in Service by the Developer, any Co-Developer, and any Person who owns part of either the Developer or CoDeveloper. These points are not available for Consultants or other development team professionals. If a Project relies on a Co-Developer's experience, the Applicant must submit to ADOH, as part of Tab H, a written agreement between the Developer and the Co-Developer that outlines the length of time that the CoDeveloper will be associated with the development of the Project and evidencing the scope of the CoDeveloper's participation in the development of the Project.
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Attach at Tab H Form H-1 and any additional lists of residential rental housing Projects developed by the Developer, any Co-Developer and any Person who owns part of either the Developer or Co-Developer. (Include the name of the Developer or other Person, name of the Project, address of the Project, city, state, number of rental Units, and the role the Developer played in development of the Project.) Number of Projects 5+ 3-4 Points Awarded 15 12
(6) Rent Restricted Units Set-Aside for 50% and 40% AMGI Tenants: a maximum of 35 points max for any combination of set-asides of Low-Income Units at 50 or 40 AMGI (15 points for 50% AMGI and 20 points for 40% AMGI). See Section 2.6 (18) Priority Market Need for guidance regarding the income and rent restrictions regarding these points. Attach at Tab N of the application Form N, "Commitment to Lower-Income SetAside." *(NOTE: This calculation is based on total Units in the Project).
50 % AMGI Rural Points 51% + = 15 21-50% = 10 10-20%= 5
50% AMGI Urban Points 61% + = 15 41-60%= 10 20-40%= 5
Up to 20 points are awarded for rent restricting a percentage of total Units for populations at 40% AMGI. Rents will be restricted for the Low-Income Units to ensure that households pay no more than 30% of the applicable income limit during the Extended Use Period.
40% AMGI Rural Points 41%+=20 16-40%=15 5-15%=10
40% AMGI Urban Points 51%+=20 21-50%=15+ 5-20%=10
(7) Development Location - Community Revitalization Projects: 15 points 15 points will be awarded if the proposed Project is located within a geographic area or parcel of property for which a specific housing or an economic development objective has been established by the local, federal or state government. These may include the following: Federal Empowerment Zones or Federal Enterprise Communities Redevelopment Areas Established HUD Neighborhood Revitalization Strategy Areas Established Colonias as designated by the United States Department of Agriculture or HUD Geographic areas or parcels of property that are established by the Local Government as part of a comprehensive affordable housing plan.
Include at Tab U: (i) evidence the property is located in the above areas or a copy of the municipal ordinance or resolution by which the governing body of the Local Government designated the area as a
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housing priority area and (ii) a map showing boundaries of the housing priority area and the location of the Project within the housing priority area. The map must clearly show the names of the roads, streets or other boundaries of the housing priority area and also clearly reflect the location of the Project on such roads or streets. If the resolution or ordinance does not include the specific boundaries of the housing priority area, then also include Form U, signed by an authorized representative of the municipality or county, stating that the Project is within the boundaries of the designated housing priority area. (8) Projects in a QCT, DDA or outside an MSA: 10 points If a Project is located within a Qualified Census Tract (QCT) or Difficult Development Area (DDA), or outside of a Metropolitan Statistical Area (MSA) as designated by HUD the Project will be awarded 10 points. (9) Family Project: 20 points
20 points will be awarded for Projects in which at least 40% of the Low-Income Units are three or four bedrooms and have a minimum of two bathrooms. (10) Project Zoning: 10 points 10 points are awarded for successful documentation that zoning is in place for all Project land. Zoning that has been conditionally approved by the Local Government will receive points only if the Applicant submits documentation from the Local Government stating the specific conditions to be satisfied and ADOH is satisfied that the conditions are minor. On sites that don't require zoning, the Applicant must submit a letter from the appropriate governmental entity stating such. For Projects located on Tribal lands, a Tribal resolution may be used to substitute for zoning certification. The Tribal resolution should state that the Project will be located in an area where the zoning requirements established by the Tribal government permit the Project or, if there are no specific zoning requirements, in an area in which the Tribal government authorizes the Project to be constructed and operated. Include at Tab J of the application ADOH Form J, "Project Zoning Certification," and other documentation required under this section. (11) Special Needs Populations: 10 points 10 points will be awarded to Projects of which at least 25% of the Project serves Special Needs Populations. ADOH will review all service agreements and pre-approve applications that intend to utilize these points. The following information must be submitted to ADOH no later than February 13, 2005 to receive an evaluation letter. ADOH will respond with an evaluation letter no later than March 1, 2005. Applicants must provide evidence of past experience with the particular Special Needs Populations to be served, a client source (e.g. letters from a referring agency, etc.) and service agreement for each population served, which also must be inserted at Tab M. This agreement must be on the service entity's letterhead, signed and dated by both parties. The Applicant must also submit under Tab M other documentation that demonstrates previous experience for each entity that will be providing services. Also submit Forms M and M-1. Applications that are not pre-approved by ADOH or do not demonstrate satisfactory experience serving Special Needs Populations will not be eligible for these points. ADOH will require that the applicable set-aside be included in the Extended Use Agreement before issuing a final Allocation and will monitor performance of these set-asides throughout the compliance period.
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(12) Senior Projects: 10 points for Projects serving 80% or more elderly individuals (at least one individual in the household must be 55 years of age or over). 15 points for Projects serving individuals who are 62+ years of age or who are disabled, and must offer Supportive Services (see Chapter 9). The tenant file must include proof of date of birth or proof of the qualifying disability. The Project will not contain 3 or 4 bedroom Units. Applicants should indicate this intention on Form C of the application and enclose at Tab M of the application Form M, "Commitment to Set-Aside Units," along with the supporting documentation required by that form, and Form Z. (13) Mixed Income: 5 points This category offers an incentive to develop Projects for mixed income populations. Points will be awarded based on the percentage of market rate Units in the Project (total market rate Units divided by total Units in the Project). % Market Rate Units 50% 40-49% 30-39% 20-29% 10-19% (14) Rural Development: 15 points 15 points are available for new construction Projects that are funded by United States Department of Agriculture (USDA) through the Section 515/514/516 and Section 538 programs. Acquisition/rehabilitation Projects funded by USDA are eligible for points under the acquisition rehabilitation category but are not eligible for points under this category. (15) Water Conservation: 10 points 10 points are available for Projects, which include water conservation devices into the Project, e.g., alternative and low-flow toilets, low-volume showerheads, aerator or flow restrictor devices in the faucets, front-loading or horizontal axis washers, and Xeriscape Landscaping. 2.9 Rents The project's LIHTC rent should be 10% below market rents in the area the Project is going to be built, as evidenced by the Market Demand Study. 2.10. Tiebreaker In the event two Projects in the queue have the same score, the following tiebreaker will be used. Points 5 4 3 2 1
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Tiebreaker Criteria (possible points = 12) 1. Efficient use of credits per tax credit Unit: 1 point (calculation will be made before QCT and DDA adjustments) 2. Rehabilitation Projects: 4 points 3. Rural: 1 point 4. Sole Non-profit: 1 point 5. Efficient use of Tax Credits per Occupant: up to 2 points 6. Direct Construction cost per Bedroom less land and soft costs: up to 3 points These are not bonus points and are not added to the Project's total score. This scoring system only determines the ranking of Projects with the same final score under the Program's competitive scoring process. 2.11. Project Ranking All of Arizona's available Year 2005 annual Tax Credit authority, and any Tax Credits returned after January 1, 2005 or made available from the National Pool, will be available for Reservation in 2005, except that portion of the Tax Credit authority reserved in the Director's Discretion set-aside. Of the State's total annual Tax Credit authority, 10% is set aside for rural Projects, 20% is set aside for Projects owned/operated and controlled by non-profit corporations, $850,000 is reserved for the Director's Discretion set-aside. In addition, Tax Credits will first be awarded to the highest scoring Projects identified in each of the "set-aside" categories set forth in Section 2.7. ADOH will establish a waiting list from eligible applications not receiving Reservations. This waiting list will remain in existence until December 31 of the Application Year. ADOH, however, reserves the right to hold Tax Credits during the application period, and to accept applications after the Deadline Date for consideration after all applications in this round have been reviewed. Those Projects meeting the eligibility requirements (see Section 2.6.), but not ranking high enough to receive Tax Credits during the current application round, may be eligible to receive any Tax Credits returned during the Year. Depending upon availability, ADOH will allocate Tax Credits that have been returned and those it has received during the Year from the National Pool to the next highest scoring Year 2005 Project(s) on the waiting list meeting the eligibility requirements. ADOH will award Tax Credits per the ranking until December 31 of the Application Year. ADOH will carry forward remaining Tax Credits to the next calendar year as permitted under IRC Section 42. Any Applicant not receiving Tax Credits from the current Year Allocation must resubmit its application in order to be considered for subsequent Year's Tax Credits. ADOH reserves the right not to reserve or allocate Tax Credits for any Project(s) in 2005, regardless of ranking under the Project scoring criteria, if it determines, in its sole discretion, that an Allocation for such Project does not further the purpose and goals set forth in IRC Section 42 or in the QAP, or otherwise attempts to circumvent the goals and requirements of the QAP or ADOH. 2.12. Carryover Allocation Projects under which the Applicant intends to place buildings in service after December 31, 2005, may receive a Carryover Allocation. Federal law allows a Carryover Allocation of Tax Credits for Projects that have expended, within six (6) months of the Allocation of credits, more than 10% (including land costs) of the reasonably expected basis in the Project by the close of the second calendar year. The following information is required for a Carryover Allocation and must be submitted to ADOH in 81/2 x 11 format, a three ring binder of adequate size, on or before the close of business December 1, 2005:
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(1) An updated application (ADOH Form C); (2) Per building Eligible Basis information required on Draft Table A (ADOH supplied form). (3) A 10% Test strategic plan, which includes the following items: A CPA or Legal Opinion which attests to the basis in the land, eligible basis, and amount of Tax Credits reserved for the Project and the amount of cost to be incurred to satisfy the 10% Test, as referenced in Section 2.12 of this QAP (the form of this opinion may be similar to Exhibit E-1 "Sample CPA Opinion"); and (b) "Project Cost Form" (Exhibit F-1) which shall indicate what line items will be expensed or accrued to meet the 10%Test. (4) Evidence, from the appropriate State agencies or commissions, that the entity that will own the Project is an existing legal entity authorized to transact business in the State and the ownership entity's taxpayer identification number. If the Applicant does not have a fully formed qualified legal entity that will own the property to which ADOH can assign the Allocation of Tax Credits, Satisfactory Progress (as described in Sections 2.6 (B)(3) and 4.2.) has not been met and ADOH may reject the application. (5) Provide, in accordance with IRC Section 42(m)(2)(B)(i) and Section 2.6. (B)(15) herein, all updated, draft and firm financing documents in existence including, but not limited to, the equity syndication prospectus (offering memorandum or equity letter), limited partnership agreement, operating agreement or joint venture agreement, partnership administration services agreement, development agreement, any amendments to the aforementioned documents, and any relevant agreement between and among the relevant parties setting forth the terms of the financial arrangements, final Commitment Letters and mortgage documents. (6) A written certification from an independent engineer that he or she has evaluated the utility capacity of the Project and that the utilities will meet the Project's needs. (7) A Phase I Environmental Review Report for all Projects. (8) Payment of all applicable fees to ADOH. (9) Any additional information requested by ADOH. (10) Copy of the Plans and Specs for the Project (submitted to the Local Government for approval). 2.13. 10% Test and Other Required Documentation IRC Section 42(h)(1)(E)(ii) requires Applicants with an executed Carryover Allocation to meet a 10% Cost Test the later of (a) the date which is 6 months after the date the Allocation is made, or (b) the close of the calendar year in which the Allocation is made. ADOH has chosen the close of the calendar year in which the Allocation is made to meet the 10% Test because Allocations are made in June. To determine if a Project with a Carryover Allocation is or has progressed in a satisfactory manner, the IRS requires a test of whether the amount of qualified costs which have been accrued or expensed within the six months described above is greater than 10% of the reasonably expected basis (eligible basis plus land). This 10% Test shall be certified by an Independent Auditor's Report in 8-1/2 x 11 format, placed in an adequately sized three ring binder and shall include the following:
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(a)
(1) A certification in the form of Exhibit F and Exhibit F1 completed by an independent thirdparty certified public accountant or qualified tax attorney, on firm letterhead, that 10% or more of the reasonably expected basis in the Project has been incurred by the above-prescribed dates. If the Developer fee is included in the 10% Test basis it must be reasonable (should not be greater than 20% of the total Developer fee and should not include fees that will be deferred). A certification that is equal to or less than 10% may result in ADOH revoking the Carryover Allocation due to unsatisfactory progress. (2) Evidence of ownership or basis in the land and improvements (if applicable), supported by a title report and closing statement from the title company. On governmental or Tribal lands, the Applicant must provide evidence of a fully executed, irrevocable lease between the Developer/Owner and the Tribal or other government for a specific rental amount and a term equal to or longer than the Extended Use Period and, for Tribal lands, evidence that all necessary approvals have been secured from the Tribe, the Bureau of Indian Affairs (BIA), and other governmental agencies. (3) Complete copies of all applicable construction contracts for the Project. (4) Applications for Projects not previously Placed in Service must provide evidence that the Project is now appropriately zoned for the proposed use and that the Local Government permits the construction of the proposed Project. (5) Evidence of appropriate building permits or any other applicable permits allowing for the construction of the Project, issued by the Local Government within 275 calendar days of the executed Carryover Allocation Agreement. 2.14. Forward Commitments ADOH may consider forward commitments for Projects. Projects that will be considered for a forward commitment are the first Project on the waiting list which is short $100,000 or less in Tax Credits based on the requested amount in the application if such amount of Tax Credits is necessary for funding of the Project. Applicants that exceed the $100,000 are not eligible for a Forward Commitment. Forward commitments will be granted by ADOH in its sole discretion 2.15. Questions ADOH will accept written questions concerning its scoring of items in an Applicant's application. Questions must be based solely on facts provided in the Applicant's original application. Copies of ADOH's scoring sheets are available at ADOH and may be copied for the standard fee. 2.16. Non-Allocated Projects Those applications that fail to receive an Allocation by December 31 of the Application Year are denied. Applicants who's Projects are denied must reapply and compete in subsequent years to be considered for Tax Credits. All fees paid to ADOH are non-refundable. 3. TAX CREDITS FOR DEVELOPMENTS FINANCED WITH STATE VOLUME CAP BOND AUTHORITY
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3.1. Determination of Tax Credits for Tax-Exempt Bond Projects IRC Section 42(h)(4) allows low-income housing Projects financed with tax-exempt bonds to be eligible for 4% Tax Credits if they meet the minimum requirements of the QAP. Applications for Projects financed with tax-exempt bonds may be submitted to ADOH as soon as Applicants receive confirmation of volume cap Allocation from the Finance Division of the Arizona Department of Commerce (phone: 602-771-1112, fax: 602-771-1208). At the time of final Allocation, Applicants sponsoring tax-exempt bond financed Tax Credit Projects will be required to pass all eligibility requirements (see Chapter 2.6), adhere to all General Regulations set forth in this QAP, and comply with all applicable requirements under Section 5, "Final Tax Credit Allocation." Applicants should consult with their legal advisors to determine a Project's eligibility. Applications for eligible tax-exempt bond Projects may be submitted, will be reviewed, and ADOH may allocate such Tax Credits outside the normal application round. The review of an application for a Determination of Qualification under IRC Section 42(m)(1)(D) will coincide with the Tax-Exempt Bond Hearing that is required under A.R.S. Section 35-726(E). Tax-exempt bond financed Projects may receive Tax Credits on the full amount of their eligible basis only if at least 50% of the Project's "aggregate basis" of any building and land upon which the building is located is financed with tax-exempt bonds. Tax-exempt bond Projects with funding gaps, requesting State Housing Funds to fill those funding gaps, must submit an application at the same time that the Applicant submits its Tax Credit application. The procedures followed by ADOH in processing applications for bond-financed Projects are set forth below. (A) Upon application: 1. ADOH will review Tax Credit applications at any time of the year after the Applicant has received a final resolution from the bond issuing authority. An Applicant must submit a complete Tax Credit application, at least 30 calendar days prior to the Section 35-726 (E) hearing. The Applicant must use the current year Tax Credit application forms. The application must be accompanied by the appropriate application fee. 2. To fully utilize 4% Tax Credits for tax-exempt bond Projects, the Applicant must include a letter from a certified public accountant or tax attorney at Tab A that attests that 50% or more of the Project's aggregate basis of any building and land upon which the building is to be located is "financed" by the tax-exempt obligation. 3. ADOH will determine whether the Applicant and the Project comply with all eligibility requirements of the QAP. 4. The Applicant must submit a certification that principal payments on the bonds will be applied within a reasonable period of time to redeem bonds that funded the financing for the Project. 5. ADOH will perform the first of two feasibility analyses to determine the amount of credits necessary for the viability of the Project. Before ADOH will make a Determination of Qualification of Tax Credits, ADOH will complete underwriting and comparison of the application submitted for the Section 35-726(E) hearing. ADOH feasibility analysis will include an underwriting of the Project in accordance with ADOH's current standards as set forth in this QAP. 6. The Applicant must pay all required fees to ADOH when due.
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(B) After Volume Cap Allocation for the bonds: 1. ADOH will issue a Determination of Qualification letter after both the Section 35-726 (E) hearing and after ADOH issues an approval letter. 2. The Applicant will submit to ADOH a written election statement, referencing IRC Section 42(b)(2)(A)(ii)(II). This election statement will certify that the Applicant has chosen to lock in the applicable percentage as of the Placed in Service date or as of the month that the tax-exempt bonds are issued. If the latter is elected: (a) The certification must specify the percentage of the aggregate basis of the building and the land on which the building is located that is financed with bond proceeds; (b) The certification must state the month in which the bonds are issued; (c) The certification must state that the month in which the bonds are issued is the month elected for the applicable percentage to be used in the building; (d) The certification must be signed by the Applicant; (e) The Applicant must provide the original notarized election statement to ADOH before the close of the 5th calendar day following the end of the month in which the bonds are issued. If this certification is not received by that date, then ADOH must use the percentage based on the Placed in Service date; and (f) The Applicant must provide ADOH with a signed statement from the governmental Unit that issued the bonds that certifies: (1) the percentage of the aggregate basis of the building and the land on which the building is located that is financed with bond proceeds and (2) the month in which the bonds were issued. 3. At the Placed in Service date, the Applicant will submit to ADOH: (a) a completed cost certification, and (b) an opinion of the Applicant's certified public accountant that 50% or more of the aggregate basis for any building included within the Project and the land on which the building is located are financed with tax-exempt bonds, and (c) an opinion of the Applicant's counsel that the Project is eligible to receive Tax Credits under IRC Section 42(h)(4). At this point ADOH will perform the final feasibility analysis of the Project. 4. The Applicant will submit to ADOH the recorded Extended Land Use Agreement and Consent and Subordination Agreement for the Project along with certifications that: (a) The bonds issued to finance all or a portion of the Project have received an Allocation of the State's private activity bond volume cap pursuant to 26 U.S.C. 146; (b) That principal payments on the bonds will be applied within a reasonable period of time to redeem bonds the proceeds of which were used to provide financing for the Project; and (c) That the governmental Unit which issued the bonds made a determination under rules similar to those set forth in IRC Section 42 (m)(2)(A) and (B) that the housing credit dollar amount for the Project does not exceed the amount necessary for the financial feasibility of the Project and its viability as a qualified low-income housing Project throughout the credit period.
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5. If the requirements of IRC Section 42 and this QAP are satisfied, ADOH will issue IRC Form 8609 for the Project at the applicable credit percentage under IRC Section 42(B)(2) and will file the original of the election statement with the original of the Form 8609 with the appropriate IRS Form 8610. 4. GENERAL REQUIREMENTS
4.1. False Filing An application, including all exhibits, appendices and attachments thereto, made to ADOH for an award of low-income housing Tax Credits, including any materials filed at a later time with ADOH in connection with an application, is considered to be an "instrument" for the purposes of A.R.S. Section 39161. According to that statute, knowingly including any false information in or with the application is a class 6 felony. Such an act may also result in barring the Applicant and Development Team Members from future awards of low-income housing Tax Credits. In addition, false filing may be subject to the provisions of A.R.S. Section 13-2311, "Fraudulent schemes and practices; willful concealment...." 4.2. Satisfactory Progress Applicants who have previously received a Determination of Qualification, Reservation or Allocation in Arizona or any other state must make Satisfactory Progress and be in substantial compliance with the requirements of federal law with respect to all prior Projects before ADOH will consider a new application. "Satisfactory Progress" means that the Applicant including any Person with an ownership interest in the Applicant or Development Team Member, has presented sufficient evidence, as determined by ADOH that the Applicant has met the benchmarks for various phases of the development of each Project e.g. financing, construction or rehabilitation, as established in the Project schedule (Form X) submitted in the Tax Credit application, or as may otherwise be reasonable or as amended and approved by ADOH. If the Applicant fails to demonstrate Satisfactory Progress, ADOH may recapture the Reservation or Allocation of Tax Credits and reject any new application from the same Applicant, Development Team, any Person with an ownership interest in the Applicant, or a member or members of the Applicant or Development Team. Applicants that have received previous Allocations must demonstrate Satisfactory Progress towards any Project Placed in Service (See Section 9, Definitions). Applicants that have not closed on construction loans or utilized bond proceeds for construction within 240 days of Allocation are not eligible for future awards without a written waiver request explaining the circumstances causing and justifying the delay. Waivers for any delay shall be granted or denied by ADOH in its sole discretion. All Applicants that have received a Determination of Qualification or Reservation, Carryover Allocation or Allocation will be required to report on Project progress, using Form X, the "Project Schedule," accompanied by a brief narrative, every 60 calendar days after receipt of the Determination, Reservation, Carryover Allocation or Allocation. Applicants with Projects that include Tax Credits that have not received a final Allocation must make a written request for an approval of the deviation from the approved Project schedule submitted with the application. Projects that are not proceeding according to the original Project schedule submitted, and approved amendments, may be subject to revocation due to lack of Satisfactory Progress. ADOH may monitor both the progress and quality of construction. If progress or quality has not been satisfactory, ADOH may report significant deficiencies to any funding source, to other members of the Project team, and to the Applicant.
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4.3. Change of Ownership ADOH's prior written approval is required for any kind of change of ownership of the Applicant. Once a Determination, Reservation, Carryover Allocation or Allocation has been issued for a Project, transfer of ownership of that Project (sale of ownership of any kind) will constitute an automatic event of revocation by ADOH. ADOH may revoke or reverse a Determination, Reservation, Carryover Allocation or Allocation or reduce the amount of Tax Credits at any time. 4.4. Special Needs Populations For Projects serving Special Needs Populations, the Project Owner will provide Supportive Services to the residents. It is the Owner's responsibility to plan and coordinate these Supportive Services so that they are provided by on-site providers or by existing off-site social service agencies. This requirement will be included in the Applicant's Extended Use Agreement. The Applicant must appropriately detail and break down the costs in its Supportive Services operating budget. In all cases, tenants applying for Special Needs Population Low-Income Units must present to the property manager a letter of referral or equivalent documentation from a licensed M.D. or recognized social service agency, certifying the tenant as a member of the Special Needs Population and noting any special accommodations required. 4.5. Senior Projects The Project Owner will provide to the residents a service package that promotes the resident's quality of life and independence while providing efficient delivery of Supportive Services to the residents. 4.6. Revocation of a Certificate of Qualification for 4% Tax Credits, Tentative Award Letter, Certificate of Reservation or Carryover Allocation for 9% Tax Credits. ADOH may deny or revoke a Determination of Qualification for 4% Tax Credits, Tentative Award Letter, Reservation or Carryover Allocation for 9% Tax Credits for any Project. Denial or revocation may occur at ADOH's sole discretion, due to actions taken by the Applicant, Affiliate or Project Owner from time of the Certificate of Reservation up to the Placed in Service date, for any of the following reasons: (1) (2) (3) (4) (5) Subsequent regulations issued by the Department of Treasury or the Internal Revenue Service. Information submitted to ADOH is determined to be fraudulent. Failure to pay fees. Failure to meet eligibility requirements, as outlined above, or other requirements of this QAP. Site evaluation and suitability based on the market impact on other affordable housing developments within the primary market area, the proximity to railroad tracks, freeways, excessive noise levels and general site suitability and other conditions regarding clean title, easements, floodplains or wetland issues. Failure to make Satisfactory Progress as defined in Section 4.2. of this QAP towards Placed in Service date. Instances of curable or incurable noncompliance existing at any time during the compliance period for any federal or state subsidized Project located in any state. Applicant or Owner fails to promptly notify ADOH of any material or adverse changes from the original application. Material Changes without written approval of ADOH. Change in Unit design, square footage, Unit mix, number of Units, number of buildings
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(6) (7) (8) (9) (10)
without the written approval of ADOH. (11) Debarment by HUD or other Federal and State programs, bankruptcy, criminal indictments and convictions. (12) Failure to comply with federal or state Fair Housing Laws. (13) Other cause demonstrating the failure of the Applicant or the Project to be qualified or meet the requirements of federal or state law or the requirements of the applicable tax credit program. 4.7. Disqualification ADOH will reject an application if ADOH the Applicant, including any Person with a Controlling Interest in the Applicant or other members of the Development Team have: (a) failed to make Satisfactory Progress in the construction or rehabilitation of any Project ; (b) not corrected compliance problems in other tax credit Projects in a timely manner; (c) not paid, when due, ADOH's compliance monitoring fees or any other fees required by ADOH; (d) filed with ADOH any materials containing false information, documents, or instruments, whether in the Application Year or prior program years; (e) failed to build a previously-approved Project in conformity with the terms, provisions, and agreements contained in the application submitted to ADOH, in the applicable year's Allocation Plan, and in the Extended Use Agreement for the Project, including but not limited to, the terms, provisions and agreements to conform to the minimum design standards, install equipment, amenities, or design features to serve a specific target population, to provide a specific mix of Unit sizes, to serve Special Needs Populations, or to set aside a certain number of Units for persons at or below a specific percent AMGI; (f) developed or partially developed prior Projects that are poorly constructed, evidence substandard workmanship, or do not comply with ADOH's Minimum Design Standards; or, (g) been convicted, are currently under indictment or complaint, been found liable or is currently accused of fraud in this state or any other state, or misrepresentation relating to: (1) the issuance of securities, (2) the development, construction, operation, or management of any Tax Credit or other government subsidized housing program, (3) the conduct of the business of the applicable party, in any criminal, civil, administrative or other proceeding, or (4) any filing with the Internal Revenue Service in any state. 4.8. Extended Use Period Pursuant to IRC Section 42, the State requires that all recipients of Tax Credits enter into an initial 15year compliance requirement and an additional extended use restriction for at least an additional 15 years after the initial compliance requirement, extending the total commitment to a minimum of 30 years. Prior to the issuance of Form 8609(s), the Owner of the Project will be required to execute and record with the county recorder where the Project is located, such an Extended Use Agreement, which shall constitute a restrictive covenant running with the property upon which the Project is located. The agreement shall be in the form provided by the State and is available from ADOH upon request. See Section 5.4. 4.9. Acquisition of Land and Buildings Applicants are required to acquire land and buildings from unrelated third parties in arms length transactions. Requests for a waiver of this requirement must be submitted with the application and include a full justification, including an appraisal less than six months old prepared by an Arizona Certified General Real Estate Appraiser. 4.10. Material Changes Notwithstanding the foregoing, ADOH strongly desires that each Applicant strictly adhere to the terms of
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its application, which was the basis upon which any Reservation or Allocation was made. All Material Changes must be approved by ADOH . In order to obtain ADOH approval of a Material Change, the Applicant must submit a written request to ADOH explaining the change and the reasons justifying the change. A $1,000 Administration Fee must accompany the written request. ADOH will not consider the request unless the fee is included. Because of ADOH's statutory mandate to award Tax Credits only to the extent they are necessary for Project feasibility, the Applicant must communicate in writing any proposed Material Change in the Project immediately to ADOH for an assessment of the impact on final underwriting and Allocation . The written request must include the Applicant's reasons under IRC Section 42 or in this Allocation Plan for believing that the change is permissible. Projects applying for a Material Change will be underwritten to the standards in the Allocation Plan of the year that Tax Credits were awarded. The Applicant must submit to ADOH written approvals of the Material Change from the Local Government, the lender, and the syndicator as discussed below. A. Change of Location and Use. ADOH will not allow an Applicant to change the location of a Project once the application has been submitted. Notwithstanding the foregoing, ADOH, may allow a Project relocation prior to the Carryover Allocation of Tax Credits if the new site for the Project is within the census tract specified in the application, ADOH receives the written approval of the Unit of Local Government, and the need for relocation was unforeseeable and beyond the Developer's control at the time of application. If an Applicant changes the location of a Project without the written approval of ADOH, ADOH will revoke the Tax Credits Determined or Reserved for the Project. Changes in the use of a Project (e.g., elderly, family, transitional) after the application has been submitted will not be allowed except with the written approval of both the Unit of Local Government and ADOH. See also below "Complex Material Changes" if the change in location involves an increase in Project costs. B. Changes to Principals. Substitution of a general or limited partner, or in syndicator or permanent lender may constitute a Material Change, and therefore, must be reviewed by ADOH. If ADOH determines there is no negative effect on the Project's feasibility, the change will not be considered material and no fee is due. C. Complex Material Changes. Complex Material Changes, (e.g. restructurings that involve a change in the number of Units in the amount of borrowed funds, or in the sources of funds), will be reviewed following the guidelines below: (1) Unforeseeable circumstances or the imposition of extraordinary governmental rules and regulations, if fully documented and justified, will be viewed as reasons to approve Material Changes. (2) When a Project is underwritten as the result of a Material Change, any decrease in the scoring or ranking of the Project will not be allowed. (3) Requests for Material Changes necessary to prevent substantial hardship to the Project or its feasibility will be considered for approval by ADOH on a case-by-case basis. (4) If, without approval of a waiver at the time of application, cost caps are later exceeded and create a need for additional funding, ADOH resources will not be a source of the additional funding. In addition, ADOH may consider the presence of newly found sources of governmental or non-governmental funds in a Project as evidence that ADOH State Housing Funds are not needed in the Project. If that occurs, ADOH may reduce or eliminate its
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contribution to the Project. (5) When the Material Change involves a restructuring, all commitments (e.g., set-asides, amenities) must be proportionately the same as at time of application. D. Failure to get ADOH approval. If the Applicant fails to obtain ADOH's approval to Material Changes, ADOH may recapture or reduce all or part of the Tax Credits Determined or Reserved for the Project. 4.11. Distribution of Units Projects shall allocate the low and moderate income Units among the different sized Units to reflect the same percentage distribution as the number of different size Units to the total number of Units. A greater percentage of the low and moderate income Units may, however, be allocated to the larger Units. Additionally, low and moderate income Units shall be distributed throughout the Project so that tenants of those Units will have equal access to and enjoyment of all common facilities of the Project. 4.12. Amendments to the QAP ADOH may modify this QAP, including its compliance and monitoring provisions, from time to time, or for any other reasons as determined by ADOH: (i) to reflect any changes, additions, deletions, interpretations, or other matters necessary to comply with IRC Section 42 or regulations promulgated there-under; (ii) to insert such provisions clarifying matters or questions arising under this QAP as are necessary or desirable and that are contrary or are inconsistent with this QAP or IRC Section 42; or (iii) to cure any ambiguity, supply any omission or correct any defect or inconsistent provision with this QAP or IRC Section 42. 4.13. Disclaimers ADOH makes no representations to the Applicant, Developer, Owner, or syndicator or to any other Person as to Project eligibility or compliance with the Code, Treasury Regulations, or any other laws or regulations governing the Low-Income Housing Tax Credit program. No member, officer, agent or employee of ADOH shall be liable for any claim arising out of, or in relation to, any Project or the Tax Credit program. Applicants will be required to execute a release and indemnification of ADOH and related parties prior to issuance of the Form 8609. 4.14. Return of Tax Credits At any time, ADOH may determine that Tax Credits reserved in a Reservation or awarded in a Carryover Allocation or a Letter of Qualification (for Tax-Exempt Financed Developments) be returned to ADOH upon notice to the Applicant. 5. FINAL TAX CREDIT ALLOCATION
5.1. Final Tax Credit Allocation and First Year Certification by ADOH By law, an Applicant must receive a Determination of Qualification or a Certificate of Reservation and a Carryover Allocation of Tax Credits from ADOH by December 31 of the Application Year. ADOH will make a final determination of the amount of Tax Credits at the time the Project is Placed in Service. ADOH will evaluate the Project's final costs and the amount of revenues from the sale of the Tax Credits.
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ADOH's final evaluation may include a review of invoices, canceled checks and contracts. Accordingly, ADOH encourages Developers to keep detailed records of construction costs. ADOH, in its sole discretion, may reduce credits based on its final evaluation and require a return of Tax Credits to ADOH. The Applicant must submit an 8609 package within 120 calendar days of the last building being Placed in Service. Along with the 8609 package, the Applicant must also submit a complete copy of an appraisal of the Project and the property prepared by an Arizona Certified General Real Estate appraiser indicating the value of land and buildings separately. At the time of a final Allocation, ADOH and the Applicant will execute and record an Extended Use Agreement. Evidence of that recording must be presented to ADOH before the issuance of IRS Form 8609(s). Applicants will receive a final Allocation of Tax Credits as described below. 5.2. First Year Certification and Issuance of Final Allocation (IRS Form 8609) For buildings that are Placed in Service as part of a qualified Project (by December 31st following the 24 months of closing of the bonds or from issuance of a Carryover Allocation), and upon compliance with all requirements of the Code and ADOH, ADOH will issue an IRS Form 8609 for each building as of the time the building is Placed in Service. The Applicant must fully pay all fees and file the following items in 8.5x11 format, adequately bound, in a three ring binder and tabbed to correspond to the following order prior to 8609 issuance: (1) An updated application (ADOH Form C). (2) A 15 year pro forma, in the form stated in Section 2.6.B(23) of this Allocation Plan, starting with the Placed in Service date. (3) A permanent lender's final appraisal of the Project. (4) All Certificates of Occupancy, issued by the appropriate governmental authorities, for qualifying buildings that must indicate the dates the buildings were Placed in Service and the addresses of those buildings. (5) An Owner's Certification of actual costs (ADOH supplied form). (6) An Independent auditor's report certifying the final cost (ADOH supplied sample). (7) The Applicant's building by building Tax Credit computation (on ADOH form Table A). (8) A letter from the permanent lender summarizing the terms and conditions of the permanent loan. Upon closing of the permanent loan, the Applicant must submit copies of the promissory note and deed of trust to ADOH. (9) A Promissory Note from the Project's ownership entity payable to the Developer in an amount sufficient to cover any Deferred Developer Fee . Other forms of obligation to pay may be substituted if allowed under the definition of Deferred Developer Fee and if they include the following: (1) the interest rate; (2) the term of repayment; (3) the source of repayment and proof that the source of repayment is supported by cash flow Projections or a binding commitment from a party capable of repayment; and (4) if there is a lien, language stating that the lien is subordinate to other liens relating to permanent financing. (10) An Extended Use Agreement and Consent and Subordination Agreement signed by the
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Applicant (form provided by ADOH). All agreements to be signed and recorded by December 31st must be submitted to ADOH not later than December 1st of that same year. (11) One 8 x 10 color photograph of at least one of the Project's buildings with signage. (12) A Statement detailing the Project's first Credit Year. (13) Final partnership, operating, or joint venture agreements. (14) An investor certification letter (ADOH provided form). (15) Written certification from the architect that the Project meets the minimum requirements of the Uniform Building Code, Uniform Mechanical Code, Uniform Plumbing Code (1994 Editions), National Electrical Code (1993 Edition), Uniform Federal Accessibility Standards, 2000 International Energy Conservation Code (IECC), the International Building Code and the HUD Fair Housing Regulations (24 C.F.R., Part 100, Subpart D). (See Form W.) (16) Certification from the Owner that the Project complies with the minimum design features required. (See Form W.) (17) Certification from the Arizona Energy Office that the Project complies with the 2000 International Energy Conservation Code (IECC) (contact the Energy Office at the Arizona Department of Commerce: (602) 771-1149). (18) Proof of flood insurance, as applicable. (19) Any additional information requested by ADOH. 5.3. Final Allocation Underwriting Prior to the issuance of IRS Form 8609(s), ADOH will underwrite the Project a final time using actual sources and uses of funds. Applicants must submit to ADOH a final cost certification, executed loan documents for all funding sources, and a copy of the final executed agreement with the equity investor. ADOH will perform an Equity Gap Analysis a third and final time. Unreasonable costs, changes in financing sources, funding amounts, or excess equity may reduce the final amount of Tax Credits. The requirements for the final cost certification are set forth in IRS Regulation 1.42-17. It states that the Applicant must certify to ADOH the full extent of all federal, state, and local subsidies that apply (or that the Applicant expects to apply) to the Project. The Applicant must also certify to ADOH all other sources of funds and all development costs for the Project. The Applicant must prepare the required schedule of development costs based on the method of accounting used by the Applicant for federal income tax purposes, and it must detail the Project's total costs as well as those costs that may qualify for inclusion in eligible basis under IRC Section 42. The Applicant must make the required certifications on the Certificate of Actual Costs Form (ADOH supplied form). IRS Regulation 1.42-17 also requires that Projects with greater than 10 Units submit a Certified Public Accountant's audit report on the schedule of Project costs. The CPA's audit must be conducted in accordance with generally accepted auditing standards, be unqualified, and be presented substantially in the form of Exhibit G to this QAP. 5.4. Extended Use Agreement (A) IRC Section 42(h)(6) requires that the Project be subject to an "extended low-income housing
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commitment." ADOH complies with these requirements by the execution and recording of an Extended Use Agreement at the time of the final Allocation. The Extended Use Agreement sets forth covenants running with the land for a minimum of 30 years. The Extended Use Agreement will also indicate the Units set-aside for lower income tenants, the percentage of median income tenants served, the special needs characteristics of tenants, tenant ownership, amenities, Supportive Services and other commitments or requirements, if any, that may apply based on the QAP or application. ADOH provides a standard form Extended Use Agreement. (B) Applicants who have received a Determination of Qualification or Reservation and Carryover Allocation of Tax Credits and desire to have the Extended Use Agreement completed and recorded by the end of the year must request it by November 1, 2005. Any requests submitted after the November 1st deadline may not be completed by the end of the year. 6. FEES
6.1. Application Fee A non-refundable fee of $3,500 is due ADOH at the time of submission of the application. Applications will be rejected unless accompanied by this fee. For Applicants requesting joint LIHTC/State Housing Fund funding, please consult the current Notice of Funding Availability of the State Housing Fund for applicable fees. NOTE: Please note that in accordance with the recent Rev. Ruling. 2004-82, application fees for applying for LIHTC are no longer allowed in basis. 6.2. Director's Discretion Application Fee Applicants for hardship requests must submit an additional application fee of $2,500 to ADOH. Hardship requests must be documented to the satisfaction of ADOH and must demonstrate the existence of an unforeseen emergency situation where the completion of the Project is jeopardized without an award of additional Tax Credits. 6.3. Building Permit Extension Fee Within 240 calendar days of the executed Carryover Allocation Agreement, the Developer must submit ADOH evidence of appropriate building permits allowing for construction of the Project, issued by the appropriate governing municipality. If the Developer requires additional time, ADOH will grant a 30-day extension upon payment of a $3,500 extension fee together with a written request for the extension, which must explain the reasons for the extension request. After three extensions, however, ADOH may revoke an Allocation, if it determines that the Applicant has not achieved Satisfactory Progress in accordance with Section 2.6.B(3) and Section 4.2.. 6.4. Determination or Reservation Fee and Final Allocation Fees (A) ADOH will assess a Final Allocation Fee and either a non-refundable Determination of Qualification Fee (4% Tax Credits) or Reservation fee (9% Tax Credits) to process an application to the point of Tax Credit Determination or a non-refundable Reservation. ADOH will calculate the total Determination of Qualification Fee or the Reservation Fee as a percentage of Tax Credits requested by the Applicant and the Final Allocation Fee as a percent of the amount of Tax Credits allocated. The percentages applicable to the Determination of Qualification Fee and the Reservation Fee are:
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(1) For-profit Applicants: 10.0% (2) Non-profit sponsored Applicants: (B) The total fee is payable as follows:
8.0%
(1) The Determination of Qualification or Reservation Fee is payable after determination that an application represents a feasible and viable Tax Credit Project with a likelihood of completion. The Applicant must pay the Determination of Qualification or Reservation Fee to ADOH prior to issuance of a Determination of Qualification (4% Tax Credits) or Reservation (9% Tax Credits). (2) Four percent Allocations that qualify for more Tax Credits at final Allocation will be required to pay an additional Reservation Fee on the additional credits at the final Allocation submission according to the following percentages of the additional credits: (i) For-profit Applicants: 8.0% (ii) Non-profit sponsored Applicants: 6.0% (3) The Final Allocation Fee of 2% is payable upon the issuance of an Allocation of credit as evidenced by the IRS Form 8609. The Applicant must submit the Final Allocation Fee together with the final Allocation information submitted in accordance with Section 5 of this QAP and prior to issuance of the IRS Form 8609(s). The Final Allocation Fee will be 2% of the final Tax Credits allocated. 6.5. Applicant's Obligation for Fee Payment ADOH will assess the non-refundable Determination or Reservation Fee and Final Allocation Fee for the purpose of covering the costs and expenses of processing an application to the point where the Applicant may receive a final Allocation. If a Determination or Reservation or Carryover Allocation is not assignable due to action or inaction by the Applicant, the fees are nonetheless due and payable to ADOH upon demand. If ADOH does not award the entire Allocation amount, upon issuance of Form 8609, ADOH will not refund any of the Determination or Reservation Fee and Final Allocation Fee. 6.6. Tenant Ownership Fees Applicants with applications that include Tenant Ownership will be required to pay an additional $4,000 legal review fee at the same time that they pay the Determination or Reservation Fee. 6.7. Carryover Allocation Late Fees ADOH will charge a Carryover Allocation Late Fee of $250 per day for any information received after the December 1st deadline of the Application Year. Carryover information not received by the close of business December 15 of the Application Year, will result in the Project not receiving a Carryover Allocation. In extreme circumstances, such as a late Reservation of Tax Credits, ADOH may waive the Carryover Allocation Late Fees. 6.8. Ten Percent Test Late Fees If the Developer requires additional time to submit the information required under Section 2.13, ADOH may grant extensions of 30 calendar days upon payment of the $3,500 extension fee. After three extensions ADOH may refuse to grant any further extensions and may reject the application if the Applicant has not achieved Satisfactory Progress in accordance with Sections 2.6. (B)(3) and 4.2. ADOH
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will charge a $500 per day fee for documentation regarding items (1) through (4) above submitted after the announced Deadline Dates. No documentation will be accepted after close of business on the announced dates. ADOH will recapture all Tax Credits and notify the Applicant if documentation is submitted later than the deadline. 6.9. Administration Fees Applicants must submit a fee of $1,000 to ADOH before any interim underwriting requested by the Applicant or additional underwriting required by ADOH due to a Material Change is performed. If the Applicant fails to pay the Administration Fee, ADOH will recapture all Tax Credits allocated to the Project. 6.10. Compliance Monitoring Fees Every Applicant for a Project that receives an Allocation must pay to ADOH a non-refundable monitoring fee to cover compliance monitoring of the Project by or on behalf of ADOH. The monitoring fee will be $50 per Low-Income Unit plus an annual report fee as listed below. ADOH will assess the monitoring fee annually and the monitoring fee will be due on or before March 15th of each year along with the submission of the annual report. Number of Units 0 to 50 Units 51 to 99 Units 100 + Units Annual Report Fee $300 $550 $1,050
ADOH will assess a $100 late fee for every 30 days that the Applicant is delinquent in paying the monitoring fee after March 15th. 6.11. Fees Are Not Refundable All fees set forth in this Chapter 6 are nonrefundable. 7. UNDERWRITING
7.1. Underwriting Standards Congress charges ADOH with allocating Tax Credits at the minimum level needed to realize the financial feasibility of a Project and its viability as a qualified low-income Project throughout the Extended Use Period. ADOH must make this determination three times: (1) at application; (2) at Carryover Allocation; and (3) at the Placed in Service date. ADOH, in its sole discretion, may request an update to any information contained in the application and thereafter underwrite a Project at any time based on such updated information, and will do so at the time of construction loan closing for Projects partially funded by the State Housing Fund. ADOH will perform an evaluation of the Project costs to determine reasonableness as compared to other Projects in similar areas. Generally, costs in excess of 110% of the Department of HUD's most recent 221(d)(3) base mortgage limit for a three bedroom elevator building currently $89,719 per Unit will not be permitted to be included in basis (although such costs are not prohibited). However, in unusual and well-documented cases, costs in excess of this limit may be included in eligible basis based on ADOH's underwriting analysis. Unusual cases may include, but are not limited to, small size Projects, Projects
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located in Qualified Census Tracts or in a federally designated empowerment zones, federal enterprise community locations, HOPE VI Projects, Projects with deep rent targeting, Projects sponsored by local nonprofit organizations, Projects in Difficult Development Areas, or difficult substantial rehabilitation Projects. In conducting its evaluations, ADOH will apply the following reasonableness standards in regard to fees: A. Developer and Consultant Fees (excluding "Consultants" normally used in the development process, such as market analysts, environmental Consultants, construction manager/Consultant when not included in the construction contract, etc.) ADOH will limit the Developer fee, overhead, and Consultant fees in calculating the amount of Tax Credits to be allocated to a proposed Project. The following parameters will change, however, if the Project is subject to subsidy layering analysis and/or there is an Identity of Interest between the Developer and the Builder. Developer Fee, Overhead, and Consultant Fee Limits As A Percent Of Total Eligible Basis In Cost Categories I-V of the Development Budget Number of Units 1-15 16-30 31-45 46-60 61+ Percent Allowed 18% 17% 16% 15% 14%
For Category IX of the Development Budget, Developer's Fee, Overhead and Consultant Fee limits for Acquisition/Rehabilitation Projects are calculated using 14% on the eligible acquisition cost to be listed in the 4% column; the chart above will be utilized to calculate the developer's fee, overhead and Consultant fee on the eligible rehabilitation cost in the 9% column. B. Factors: (1) Project Need. ADOH will evaluate the Market Demand Study to ascertain that there is strong new market demand for the type of low-income housing proposed. The Market Demand Study must be in the form and format required by ADOH. (See Exhibit L to this QAP.) ADOH underwriters will review data submitted concerning the market area; the target population (e.g., e, large family, priority populations with special housing needs); occupancy levels and vacancy rates of comparable Projects; absorption rates for comparable Projects recently entering the market; and current waiting lists, including the waiting list of the local Public Housing Authority. ADOH underwriting review will assess the risk associated with adding the proposed Units to the housing stock, including the risk of economic disruption to properties already offering comparable housing in the market area. If the Market Demand Study submitted with the application is incomplete, ADOH may require the Applicant to supplement the study in whole or in part before the evaluation of market risk can be completed. The Applicant must pay for any supplements ordered by ADOH. (2) Affordability of Proposed Rents. ADOH underwriter will review the proposed LIHTC rents to determine whether they are: (i) 10% below market rents being charged for the same type Units in the Primary Market Area (PMA), (ii) will be affordable to the target population; and (iii) will generate sufficient income to cover operating expenses and debt service of the Project. The primary focuses of this review are affordability to the residents, the appropriate quality of the
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proposed housing, including design features and amenities committed to by the Developer/Owner, and the Project's long-term viability as affordable housing. This review will attempt to balance the initial cost of the Project against the affordability to low-income residents and against long-term viability. The review evaluates the risk of obtaining proper value for the taxpayer's investment and how that value is distributed between affordability and long-term viability. (3) Developer Experience and Ability to Deliver the Project as Designed in the Time Allotted. ADOH will assess the "Developer risk," - the possibility that the Development Team is insufficiently skilled, experienced, or financed to deliver as promised. ADOH underwriter will review resumes and financial statements of key members of the Development Team for indications of sufficient experience and borrowing capacity. ADOH will investigate any indications of Identity of Interest among members of the team to determine whether appropriate adjustments should be made to the compensation allowed the team. (4) Project Feasibility. ADOH will award Tax Credits to only those Projects that ADOH determines are feasible. ADOH underwriter will determine whether all costs are appropriate and reasonable, the site can be built as proposed, all utilities and necessary community amenities are available to the site, and once completed, the Project will be able to make available affordable housing to the targeted low-income residents throughout the proposed Extended Use Period. (5) Overall Project Cost Reasonableness. At each of the three times that underwriting is performed, ADOH shall review the cost reasonableness of all Project costs in order to calculate the amount of eligible basis for the Project. Failure to comply with cost reasonableness could be the basis for the denial, reduction, or return of a Reservation or Allocation of credits, at any of the three times underwriting is performed. (6) Reasonable and Customary Costs. All costs must be reasonable and customary with respect to Projects of comparable size and type, mix, location and amenities. ADOH will determine cost reasonableness from, among other sources, a database compilation of the experience of prior multifamily Projects in the State and consultation with construction cost experts. (7) Acquisition Cost Limits. For Project land for multi-story multifamily Projects consisting of more than the limits in the table below, the Applicant must submit a plot plan on which all undeveloped land has been clearly identified. Bedrooms 0-Bedroom 1-Bedroom 2-Bedroom 3-Bedroom 4-Bedroom Net Area Per Unit (Sq. Ft.) 1,700 2,200 3,500 4,200 4,800
Applicants for Projects awarded Reservations must substantiate land and building acquisition costs with an appraisal prepared by an Arizona Certified General Real Estate Appraiser as part of Carryover documentation, or, if the Project does not require Carryover, at final Allocation (see Section 5.3.). ADOH will not allow land and building acquisition costs in excess of appraised value. 7.2. Builder's Profit, Overhead and General Requirements Limits
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The Department will allow the following maximum percentages as Builder or general contractor charges. (Percentage will be applied to the aggregate of the "Total: Site and Demolition," the "Subtotal: Direct Construction," and the line item "Community Buildings," on the Development Budget, Form C of the application.) If an Identity of Interest exists between the Developer and the Builder, the Builder's Profit will be allowed at a lower percentage (see chart below.) Builder's Profit, Overhead* and General Requirements** Project size in Units Builder's Profit (with Identity of Interest), or Builder's Profit Builder's Overhead* General Requirements** Total Maximum Percentage * ** Percent of Costs 1-15 2 6 3 6 15 16-30 2 5.75 2.75 5.75 14.25 31-45 2 5.5 2.5 5.5 13.5 46-60 2 5.25 2.25 5.25 12.75 61+ 2 5 2 5 12
Builder's overhead includes a percentage for main office expenses for the job. General requirements include Project related site costs such as temporary fencing, utilities to site during construction, job site supervisor, job site office, etc.
7.3. Construction Financing Cost ADOH, in its sole discretion, may lower the cost included in this category based on the reasonableness of the construction lender's Letter of Interest or Intent. ADOH will analyze: (i) if the interest rate is comparable to the market; (ii) the origination and loan fees are equivalent to 2% of the construction loan amount; and (iii) the construction interest will be calculated as follows: Construction Loan Amount x Annual Interest Rate = Monthly Interest 12 Monthly Interest x Months of Construction plus Stabilization = Interest x 50% Ave